THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 
GIFT  OF 

Pachty,  Tannenbaum,  &  Ross 


771. 


SELECTED  CASES 


AND 


STATUTES 


ON 


THE  LAW  OF  BANKRUPTCY. 


EDITED    AND    ANNOTATED 

BY 

SAMUEL   WILLISTON, 
m 

WELD   PROFESSOR  OF   LAW  IN   HARVARD  UNIVERSITY. 


SECOND   EDITION. 


CAMBEIDGE 
HARVARD   UNIVERSITY   PRESS 


T 

U)  61971) 


Copyright,  1902,  1915, 
By  SAMUEL  WILLISTON. 


PRINTED    AT    THE    HARVARD    UNIVERSITY    PRESS 
CAMBRIDGE,  MASSACHUSETTS,  U.  S.  A. 


CONTENTS, 
bi 


PAGE 

TABLE  OF  CASES < ^    v 

HISTORICAL  INTRODXJCTION 1 

PART  I.  —  STATUTES. 
Act  of  July  1,  1898,  and  amendments 7 


PART  II.  —  CASES. 

CHAPTER   I. 

RESPECTIVE    JURISDICTIONS    OF    THE    UNITED    STATES    AND 
THE   SEVERAL  STATES. 

SECTION      I.     EXTENT  OF  THE  POWERS  OF  THE  UNITED  STATES  ...       45 
SECTION    II.     EXTENT  OF  THE  POWERS  OF  THE  SEVERAL  STATES  49 


CHAPTER   II. 
WHO   MAY  BE  A  BANKRUPT. 

SECTION      I.    ALIENS  AND  NON-RESIDENTS 86 

SECTION    II.     INFANTS  AND  MARRIED  WOMEN 93 

SECTION  III.     INSANE  PERSONS 100 

SECTION  IV.     CORPORATIONS 102 

SECTION     V.    WAGE  EARNERS  AND  FARMERS 108 

CHAPTER  III. 

WHO  MAY  BE  PETITIONING  CREDITORS Ill 

CHAPTER  IV. 
ACTS  OF   BANKRUPTCY. 

SECTION      I.    FRAUDULENT  CONVEYANCES 121 

(a)  SALES  AND  TRANSFERS  FOR  VALUE 123 

(6)  VOLUNTARY  SETTLEMENTS  AND  CONVEYANCES   .    .  166 

(c)  GENERAL  ASSIGNMENTS  FOR  CREDITORS 220 

(d)  STATUTES  OF  LIMITATIONS 241 

SECTION    II.     PREFERENCES 245 

(a)  INSOLVENCY 247 

(b)  INTENT  TO  PREFER 248 

(bb)  REASONABLE  CAUSE  TO  BELIEVE  THAT  A  PREFER- 
ENCE WILL  BE  EFFECTED 256 

(c)  WHAT  is  A  "TRANSFER"  OF  THE  DEBTOR'S  PROP- 

BRTY                                                         ....  259 


648363 


iv  CONTENTS. 

PAGE 

(d)  WHO  MAY  BE  PREFERRED 272 

(e)  EFFECT  OF  FAILURE  TO  RECORD 277 

(/)   FROM  WHOM  A  PREFERENCE  MAY  BE  RECOVERED  283 

(g)  SUFFERED  OR  PERMITTED 285 

(h)  TRANSFERS  FOR  PRESENT  CONSIDERATION  ....  303 

(i)   COLLATERAL  EFFECTS  OF  PREFERENCE 318 

SECTION  III.     GENERAL  ASSIGNMENTS 327 

SECTION  IV.    RECEIVERSHIPS  AS  ACTS  OF  BANKRUPTCY      336 

CHAPTER  V. 
WHAT  PROPERTY   PASSES  TO  THE  TRUSTEE. 

SECTION      I.    TIME  OF  THE  TRANSFER 344 

SECTION    II.     SITUS  OF  THE  PROPERTY 355 

SECTION  III.    DISSOLUTION  OF  LIENS 372 

SECTION  IV.    DIFFERENT  KINDS  OF  PROPERTY      387 


CHAPTER  VI. 
PROVABLE  CLAIMS. 

SECTION      I.  IN  GENERAL      :    .    .  473 

SECTION    II.  SECURED  CLAIMS 538 

SECTION  III.  CLAIMS  HAVING  PRIORITY      548 

SECTION   IV.  MUTUAL  DEBTS  AND  CREDITS 551 

CHAPTER  VII. 

VARIOUS   DUTIES  AND   POWERS  OF  THE  BANKRUPT  AND 
HIS  TRUSTEE , 574 

CHAPTER  VIII. 
PROTECTION,  EXEMPTIONS  AND  DISCHARGE  OF  BANKRUPT. 

SECTION      I.     PROTECTION 591 

SECTION    II.     EXEMPTIONS 597 

SECTION  III.     DISCHARGE  602 


TABLE  OF  CASES. 


WHOLLY   OK   PARTIALLY   REPRINTED. 


PAGE 

ALEXANDER,  Re Ill 

Allen  v.  Ferguson 644 

Ames,  Ex  parte 304 

Atkins  v.  Wilcox 507 

Audubon  v.  Shufeldt 523 

Aultman  &  Taylor  Co.  v.  Pikop .    .  210 

BABCOCK  i>.  Eckler 173,  n. 

Baldwin  v.  Hale 49 

—  v.  Short 144 

Barnett  v.  King 476 

Earth  v.  Backus 365 

Becker,  Re 428 

Brothers,  Re 567 

Beckham  v.  Drake 446 

Benson  v.  Benson 140 

Bingham,  Re 486 

Birkett  v.  Columbia  Bank    ....  639 

Bluthenthal  v.  Jones 605 

Boese  v.  King 78 

Boston  <fe  Fairhaven  Iron  Works,  Re  515 

Boynton  v.  Ball 624 

Brice,  Re 93 

Brigham  v.  Home  Life  Ins.  Co.  .    .  459 

Brinckmann,  Re 117 

Brundage  v.  Cheneworth  ....   200,  n. 

Bryan  v.  Bernheimer 583 

Bunyard,  Re 497 

Burka,  Re 473 

Butler  v.  Mullen 354 

,  Wm.  S.,  &  Co.,  Re 336 

CARPENTER  v.  Marnell 387 

Chicago  Title  &  Trust  Co.  v.  Roeb- 

ling's  Sons  Co 247 

Cilley  v.  Colby 611 

Citizens  Banking  Co.  v.  Ravenna 

Nat.  Bank 299 

Claiborne,  Re 591 

Clarke  v.  Larremore 384 

v.  Minot 348 

v.  Rogers 275 

Columbia  Falls  Brick  Co.  v.  Glidden  493 
Continental,  etc.  Trust  &  Savings 

Bank  v.  Chicago  Title  &  Trust  Co.  263 

Crawford  v.  Burke 517 

Crockett  v.  Phinney 147 

Crossley  v.  Elworthy 188,  n. 

DARVILL  v.  Terry 133 

Davis  v.  Hanover  Savings  Fund  So- 
ciety       277 

Day  v.  Cooley 208,  n. 

Dow,  Re 552 

Dreyfus,  Ex  parte 562 


PAGE 

Duncan  v.  Landis 285 

Dushane  v.  Beall 465 


EBERSOLE  v.  Adams 70 

Edwards  v.  Harben    .......  126 

Egery  v.  Johnson 155 

Emslie,  Re 372 

European  Bank,  Ex  parte     ....  495 

Everett  v.  Judson 344 

FAXON,  Ex  parte 506 

Feldstein,  Re 577  ' 

Fife,  Re 523 

First  National  Bank  v.  Glass  ...  137 

Fowler,  Re 536 

Fox  v.  Gardner 319 

Frank  v.  Bobbitt 361 

Franklin  Syndicate,  Re 575 

Freeman  v.  Pope 178 

French  v.  Motley 135 

Funk,  Re 100 

GARDNER  v.  Commercial  Nat.  Bank  226 

Gibson  v.  Carruthers 451 

Goding  v.  Roscenthal 494 

Golden  v.  Gillam 150 

Goodwin,  Re 644 

Gray  v.  Rollo      564 

Greey  v.  Dockendorff 257 

Grover  v.  Wakeman 230 

Gutwillig,  Re 332 

HAOERMAN  v.  Buchanan 202 

Halsey,  etc.  Co.,  Re 119 

Harlan  v.  Maglaughlin 195 

Haskell  v.  Merrill 402 

Hatch,  Re 597 

Hawkins  v.  Learned 68 

Henderson  v.  Mayer 375 

Hennequin  v.  Clews 630 

Hesseltine  v.  Prince 424 

Higden  v.  Williamson 425 

Hill  ».  Harding 608 

Hill,  George  M.  Co.,  Re 283 

Houghton,  Ex  parte 503 

Hoxie,  Re 642 

Hunter  v.  Potts      355 

IMPERIAL  BREWING  Co.,  Re    .    .    .  519 

JAEGER  v.  Kelley 142 

Jeffrey,  Ex  parte 159 

Johnson,  Re 160 


VI 


TABLE   OF   CASES. 


PAGE 

KELSEY  v.  Kelley 158,  n. 

Keppel  v.  Tiffin  Savings  Bank     .    .  323 

Kingsley,  Re 532 

Kinmouth  v.  Braeutigam      ....  629 

LANCEY  v.  Foss 469 

Lane,  Brett  &  Co.,  Re 562 

Laurie,  Re 506 

Leidigh  Carriage  Co.  v.  Stengel  .    .  45 

Leitch  v.  Northern  Pac.  Ry.  Co.     .  636 

Libby  v.  Hopkins 555 

Locke,  Re 303 

Lockwood  v.  Exchange  Bank  .  .  .  598 
Loeser  v.  Savings  Deposit  Bank  & 

Trust  Co 278 

Long  v.  Girdwood      358 

Lothrop  v.  Highland  Foundry  Co.    .  62 

Lowenberg  v.  Levine 58 

Luckhardt,  Re 108 

McCoNNELL  v.  Kelley 91 

Mace  v.  Wells 487 

McKay  and  Aldus,  Re 304 

McKee  v.  Preble 641 

McKenna,  Re 417 

Marcus,  Re 595 

Marshall  Paper  Co.,  Re 616 

Marston  v.  Marston      201 

Martindale  v.  Booth 130 

Mayer  v.  Hellman 73 

Mercer,  Ex  parte 182 

Merchants'  and  Miners'  Transpor- 
tation Co.  ».  Borland 212 

Merrill  v.  Nat.  Bank  of  Jacksonville  538 

Metcalf  v.  Barker 377 

Miner,  Re 115 

Moch  v.  Market  Street  Nat.  Bank  .  485 

Moore,  Re 528 

Morgan  v.  Wordell 560 

Moses,  Re 395 

Moth  v.  Frome  .    .    .    .  - 428 

Mueller  v.  Nugent 587 

Mundo  v.  Shepard 248 

Murrin,  Re      460 

Mussey,  Re 602 

NATIONAL  BANK   OF  NEWPORT  v. 

National,  etc.  County  Bank  .  .  268 

National  City  Bank  v.  Hotchkiss  .  316 
New  York  County  Nat.  Bank  v. 

Massey 259 

New  York  and  Westchester  Water 

Co.,  Re 102 

Newton,  Ex  parte 497 

Nutter  v.  Wheeler 391 

O'NEIL,  Ex  parte 536 

Oriental  Commercial  Bank,  Re   .    .  495 

PACIFIC  STATE  BANK  v.  COATS    .    .  406 

Parker  v.  Norton 514 

Phelps  v.  Borland 612 

Phenix  Nat.  Bank  v.  Batcheller  .     54,  n. 

Pickens  v.  Roy 381 

Pickstock  v.  Lyster 220 

Pittelkow,  Re 580 


PAGE 

Plotke,  Re 86 

Pollet  v.  Cosel 606 

Price,  Re 574 

Pullen  v.  Hillman  .  55 


READE  v.  Livingston 

Rand  v.  Iowa  Central  Ry.  Co.    . 

Richardson  v.  Shaw 

Riggin  v.  Magwire 

Roger  Williams  Nat.  Bank  v.  Hall 
Rogers  v.  American  Halibut  Co. 

Romanow,  Re 

Rose  v.  Buckett 

Rouse,  Hazard  &  Co.,  Re     .    .    . 
Russell  v.  Woodward     , 


166 
346 

272 
480 
502 
256 
114 
440 
548 
222 


SANDERS  v.  Logue 188,  n. 

Sawyer  v.  Levy 318 

v.  Turpin 310 

Sayre  v.  Glenn 483 

Severs  v.  Dodson 189 

Sheperdson's  Appeal 72 

Sheridan,  Re 314 

Souther,  Re 499 

Steele,  Re 463 

Steelman  v.  Mattix 66 

Stratton  v.  Edwards 207 

Putney 165 


Stroheim  v.  Perry 119 

Swift,  Re 501,  n. 

TALCOTT,  Ex  parte 499 

Tetley,  Re 159 

Thayer  v.  Daniels      489 

Thorp  v.  Leibrecht 190,  n. 

Thomas  v.  Woods       410 

Thompson  v.  Fairbanks 397 

Thomson  v.  Crane 193,  n. 

Toof  v.  Martin 255,  n. 

Tulley  v.  Sparkes 478 

Twyne's  Case 123 

VIZARD'S  TRUSTS,  Re 426 

WAGNER  v.  United  States     ....  593 

Wagstaff,  Ex  parte 551 

Warren  v.  Moody 217 

Way  v.  Howe      603 

Weaver  v.  Haviland 241 

West  Company  v.  Lea 327 

Western  Tie  &  Timber  Co.  v.  Brown  570 

Westlund,  Re      550 

Whiting,  Ex  parte      552 

Wm.  S.  Butler  &  Co.,  Re     ....  336 

Williams  v.  Heard      430 

Williams  v.  United  States  F.  &  G. 

Co 491 

Wise,  Re 182 

Witters  v.  Globe  Savings  Bank   .    .  370 

Wolf,  Re 308 

Wood  v.  Vanderveer 620 

Wright  v.  First  Nat.  Bank  ....  438 

YEATMAN  v.  Savings  Institution  .   .  388 

York  Mfg.  Co.  v.  Cassell 403 


INDEX   TO   STATUTES. 


SECTION 

ABATEMENT,  not  caused  by  death  or  insanity  of  bankrupt  .    .  8 

not  caused  by  death  or  removal  of  trustee  or  assignee      .    ,  46 

ACCOUNTS,  of  trustee 47 

ACT  OF  BANKRUPTCY,  what  is      3  a 

ACTIONS,  shall  not  be  brought  by  or  against  trustees  after  two 

years 11  d 

rights  of  bankrupt  vest  in  trustee  or  assignee 11  a,  70  a 

by  and  against  bankrupt 11 

against  bankrupt  —  when  to  be  stayed lla 

by  trustee,  in  what  courts  to  be  brought 23 

on  bonds  of  trustee  or  referee 50  I,  m 

ADJOURNMENT,  of  proceedings  when  notices  not  properly 

served 

ADJUDICATION,  meaning  of ......'>.'"  1(2) 

when  made 18 

ADMISSION  OF   INSOLVENCY,  an  act  of  bankruptcy    .    .  3  a  (5) 

AFFIRMATION,  allowed  instead  of  oath 18  6 

APPEALS,  in  bankruptcy,  when  and  how  made 24,  25 

APPELLATE   COURTS,  meaning  of 1  (3) 

jurisdiction  of 24,  25 

APPRAISAL,  of  bankrupt's  estate 70  b 

ARBITRATION,  matter  in  controversy  may  be  submitted  to  .  26 

ARREST,  when  bankrupt  not  liable  to 8 

ASSENT,  to  composition       12 

ASSIGNMENT,  what  passes  by 70 

an  act  of  bankruptcy 3  a  (4) 

ATTACHMENT,  when  dissolved 67 

ATTORNEY-GENERAL,  duties  of 53 

ATTORNEYS,  transfer  by  bankrupt  to,  may  be  re-examined  .  60  d 

BANKRUPT,  definition  of 1  (4) 

who  may  be 3,  4 

examination  of,  how  and  when  made 3  d,  7 

exemptions  of 6,  7  a  (8) 

protection  of 9 

extradition  of 10 

duties  of 7 

death  or  insanity  of,  does  not  abate  proceedings 8 

when  to  apply  for  discharge 14  o 

suits  by  and  against 11 

may  offer  composition  when 12 

offences  by,  how  punished      29 


Viii  INDEX   TO   STATUTES. 

SECTION 

BANKRUPTCY,  date  of,  or  time  of,  meaiis  what 1  (10) 

acts  of,  what  are 3  a 

BOND,  required  when  possession  taken  prior  to  adjudication  .    .  3  e 

referee  or  register  to  give 50 

trustee  need  not  give,  on  appeal 25  c 

despositories  to  give . 61 

trustees  or  assignee  to  give 50 

BOOKS,  failure  to  keep,  when  ground  for  refusing  discharge     .  14 

BUSINESS,  authority  to  continue  bankrupt's 2  (5) 

CERTIFIED  COPIES,  of  what  are  admissible  as  evidence  .    .  21  d-g 

CERTIFYING  QUESTIONS,  by  Justice  of  Supreme  Court    .  25  b,  2 

CIRCUIT  COURTS,  jurisdiction  of      '  .    .  23 

CIRCUIT  COURTS  OF  APPEALS,  appellate  jurisdiction  of    .  24,  25 
CLAIMS.     See  DEBTS. 

CLERK,  definition  of * 1  (5) 

duties  of 51 

duties  in  regard  to  papers 39  (7)  (8)  (10) 

shall  refer  cases  to  referee  when 18  /,  g 

fee  for  referee  deposited  with 40  a 

fee  for  trustee  deposited  with 48  a 

CO-DEBTORS,  not  released  by  bankrupt's  discharge    ....  16 

COMMENCEMENT  OF  PROCEEDINGS,  what  is  ....  1  (10) 

COMPOSITIONS,  when  allowed,  and  nature  of  proceedings     .  12,^707 

notice  must  be  given  of  hearing  on 58  a  (2) 

operate  as  discharge  when  confirmed 14  c 

effect  of  setting  aside 64  c,  70  d 

when  set  aside 13 

COMPROMISES,  may  be  made  by  trustee  when    .......  27 

notice  of,  proposed  must  be  given  to  creditors 58  a  (7) 

CONCEAL,  meaning  of 1  (22) 

CONCEALMENT,  fraudulent  by  bankrupt,  how  punished  .    .  29  b 

CONTEMPT,  before  referee,  what  is 41  a 

facts  to  be  certified  to  judge      41  b 

CONVEYANCES,  fraudulent,  may  be  set  aside  by  trustee  or 

assignee 67  e,  70  a,  e 

fraudulent,  are  acts  of  bankruptcy 

COPYRIGHTS,  title  to,  passes  to  trustee 

CORPORATIONS,  definition  of      '. 

discharge  of,  does  not  discharge  officers  or  stockholders  .    . 

to  what  bankrupt  act  applies 

COSTS,  to  have  priority  in  payment 

COURT,  definition  of 

COURTS,  of  bankruptcy,  definition  of 

of  bankruptcy,  what  are,  and  their  powers 

jurisdiction  of  United  States  and  State 

CREDITOR,  definition  of 1  (9)  (23) 

CREDITORS,  list  of,  must  be  filed 7  a  (8) 

appoint  trustee  or  assignee 44 

fix  amount  of  trustee's  bond      50  c 

meetings  of 55 

who  may  vote  at  meetings 56 


INDEX   TO   STATUTES.  1X 

SECTION 

proof  of  claims  by 57 

when  entitled  to  notice 58 

may  examine  bankrupt 7  a  (9) 

entitled  to  priority 64 

dividends  to      65,  66 

preferred 60 

who  may  file  involuntary  petition 59  b,  d-g 

CRIMES.     See  OFFENCES. 

DEATH,  of  bankrupt  does  not  abate  proceedings 8 

of  trustee  does  not  abate  proceedings 46 

DEBT,  meaning  of 1  (11) 

DEBTS,  what  are  provable : ^    .  ' .    .    .  63 

allowed  at  first  meeting 55  b 

.mutual  debts,  and  set-off 68 

interest  on,  when  rebate  of 63 

proof  of,  how  made 57 

after  allowance,  may  be  reconsidered \         57  k 

when  reconsidered  dividend  may  be  recovered 57  / 

limitation  of  time  for  proving 57  n 

what  to  have  priority      64 

appeals  from  allowance  or  rejection  of 25 

what  not  to  be  discharged      17 

DEFINITIONS 1 

DEPOSITIONS,  when  and  how  to  be  taken 21  6,  c 

DEPOSITORIES,    shall  be  designated  by  court  for  money  of 

bankrupt  estates 61 

DISCHARGE,  application  for,  by  bankrupt,  when  and  how 

made 14 

ground  for  withholding 14  b 

when  revoked 15 

does  not  release  co-debtor  or  surety 16 

effect  of  revoking 64  c,  70  d 

specifications  against 14 

effect  of 17 

DISMISSAL  OF  PETITION,  not  to  be  made  until  after  notice 

to  creditors 58  a  (8),  59  g 

DISTRIBUTION,  of  bankrupt's  estate •- .   '.      65,  12  e 

in  cases  of  partnership 5 

DISTRICT  COURT,  jurisdiction  of ,   .  2,  23 

See  DISTRICT  JUDGE. 

DISTRICT   JUDGE,  referee  or  register  to  be  appointed  by  ...  34 

to  decide  issues  raised  before  referees  or  registers      ....  38 

may  remove  referees  or  registers 34 

to  make  adjudication 18  e-g 

to  designate  referee  or  register  to  take  charge  of  case  ...  22 

to  confirm  composition 12  d 

when  to  appoint  trustee  or  assignee 44 

DIVIDEND,  declaration  and  payment  of      65,  66 

notice  must  be  given  of ' .  58  a  (5) 

on  reconsidered  claim  may  be  recovered 57  I 

duty  of  referee  to  declare 39  (1) 

commission  on,  payable  to  referee 40  a 

duty  of  trustee  to  pay •    •  "      47(9) 


X  INDEX   TO   STATUTES. 

SECTION 

DOCUMENT,  meaning  of 1  (13) 

relating  to  property  passes  to  trustee 70  a  (1) 

EMBEZZLEMENT,  of  bankrupt  estate,  how  punished     ...  29  a 

EVIDENCE,  how  taken 21 

record  of,  must  be  made  up  by  referee 39  (5) 

must  be  taken  down  by  referee  when 39  (9) 

EXAMINATION,    of  bankrupt  when  allegation  of  insolvency 

denied 3d 

notice  of,  to  be  given  creditors      58  a  (1) 

when  and  how  made 21 

of  witness 21 

EXEMPTIONS,  what  are 6,  70  a 

how  claimed      7  a  (8) 

duty  of  trustee  to  set  aside 47  (11) 

EXPENSES  OF  ADMINISTRATION  shall  be  paid  out   of 

estate 62 

have  priority 64  b 

EXTRADITION,  of  bankrupt 10 

FEES,  additional,  not  allowed 72 

of  trustee  or  assignee 48 

of  referee  or  register 40  a 

of  clerk 52 

of  marshal 52 

clerk  shall  collect,  account  for,  and  pay  over 51 

FRAUD,  when  composition  may  be  set  aside  for 13 

property  conveyed  in,  of  creditors  may  be  recovered    ...  67  e,  70  a,  e 

discharge  does  not  release  from  debt  contracted  by  ....  17 

discharge  obtained  by,  may  be  set  aside 15 

FRAUDULENT  CONVEYANCES,  are  acts  of  bankruptcy    .  3  a  (1) 

when  may  be  avoided 67  e,70  a,  e 

HOLIDAY,  meaning  of 1  (14) 

INJUNCTION,  restraining  suits  by  and  against  bankrupt  when 

granted      11 

INSANITY,  of  bankrupt  does  not  abate  proceedings 8 

INSOLVENCY,  meaning  of .    .  1  (15) 

INSOLVENT  LAWS  OF  STATES,  proceedings  begun  under 

before  July  1,  1898,  not  affected conclusion 

INSURANCE,  policy  of,  may  be  redeemed  by  bankrupt    ...  70  a 

INTEREST,  when  to  be  rebated 63 

INVOLUNTARY  BANKRUPTCY,  for  what  causes  debtor  sub- 
ject to 3  a 

against  whom  petition  may  be  filed 4 

by  whom  petition  may  be  filed 59 

proceedings  upon  petition  in      18 

JUDGE,  meaning  of  word  in  act      1  (16) 

See   DISTRICT  JUDGE,  CIRCUIT  JUDGE,  JUSTICES  OP   THE 
SUPREME  COURT. 

JURISDICTION,  of  Bankruptcy  Courts 2 

of  State  and  United  States  courts 23 

of  referees  or  registers 38 


INDEX   TO   STATUTES.  xi 

SECTION 

JURY,  trial  by,  when  allowed 19 

JUSTICES  OF  THE  SUPREME  COURT,  to  frame  rules  .  30 

may  certify  question  for  determination 25  b,  2 

LIENS,  when  avoided 67 

LIMITATION,  of  suits  by  or  against  trustee  or  assignee    ...  11  d 

of  actions  on  bonds  of  trustee  or  referee      50  I,  m 

of  time  for  proving  claims      57  n 

LOST  INSTRUMENT,  how  proved 57  & 

MARSHAL,  fees  of 52  & 

when  to  take  possession  of  debtor's  property 69 

MEANING  OF  TERMS,  used  in  the  act 1 

MEETING  OF  CREDITORS,  when  called 55  a,  d-f 

business  of 55  b,  c 

who  may  vote  at      56 

notice  of,  how  given 58 

MUTUAL  DEBTS  AND  CREDITS,  set  off  against  each  other  68 

NEWSPAPERS,  shall  be  designated  by  court   for  publishing 

notices 28 

NOTICE,  of  the  taking  of  depositions 21  c 

in  what  newspapers  published 28 

must  be  given  to  creditors  by  referee  or  assignee 39  (4),  58  c 

in  what  cases  required  to  be  given 58 

must  be  given  by  mail 58  a 

when  must  be  published 58  & 

OATH,  meaning  of -1  (17) 

pleadings  must  be  verified  by    .    .  ' 18  c 

who  may  administer    . 20 

false,  how  punished 29  6 

of  office,  of  referees      36 

proof  of  claim  must  be  under 57  a 

OFFENCES,  what  are  under  the  act      29 

OFFICERS,  meaning  of 1  (18) 

PARTNERSHIP,  may  be  adjudged  bankrupt  when 5 

distribution  of  estate       5/ 

PATENTS,  title  to,  passes  to  trustee 70  a 

PENALTIES,  proof  on,  allowed  only  for  actual  loss   ......  57  j 

against  bankrupt,  officers,  and  others 29 

PERSONS,  meaning  of 1  (19) 

PETITION,  meaning  of 1  (20) 

voluntary,  who  may  file 4  a,  59  a 

involuntary,  who  may  file 59  6,  d-f 

must  be  filed  in  duplicate 59  c 

not  to  be  dismissed  till  after  notice  to  creditors 58  o  (8),  590 

where  to  be  filed 2  (1) 

in  involuntary  cases,  when  may  be  filed      36 

procedure  upon  filing  of      18 

for  revision  of  decision  of  lower  court 24 

when  may  first  be  filed conclusion 

PLEADING,  in  bankruptcy  proceedings 18 


Xii  INDEX   TO   STATUTES. 

SECTION 

POSSESSION,  of  bankrupt's  estate  pending  adjudication      .    .  3e 

POWERS,  when  bankrupt's  pass  to  trustee 70  a 

PREFERENCES,  are  acts  of  bankruptcy 3  a  (2)  (3) 

creditors  who  have  received,  cannot  prove  without  surrender  57  g 

what  are 60  a 

when  may  be  recovered  back 60  b-d 

PRIORITY,  what  claims  have 64 

right  to  vote  of  creditors  having 56  6 

PROCESS,  how  issued,  and  returnable 18 

PROOF  OF  DEBTS,  how  to  be  made 57 

must  be  examined  by  bankrupt 7  a  (3) 

between  partnership  estates • .  5  g 

PROPERTY,  possession  of  bankrupt's 69 

transfer  of  title  to 47,  70 

PROVABLE  DEBTS,  what  are 63 

See  DEBTS. 

PUBLICATION,  of  notices  of  first  meeting      ........  58  6 

of  other  notices 58  6 

to  be  in  papers  designated  by  court 28 

RECEIVER,  appointment  of,  when  an  act  of  bankruptcy     .    .  3  a 

may  be  given  authority  to  continue  business 2  (5) 

RECORDING,  effect  of  not 36 

RECORDS,  referee  or  register  must  keep  and  transmit  to  clerk  39  (7)  (8),  42  c 

how  referee  or  register  shall  keep      42 

REFEREES  or  REGISTERS,  meaning  of 1  (21) 

office  created 33 

cases  referred  to,  by  clerk  when 18 

cases  may  be  referred  to,  generally  or  specially 22 

offences  by,  what  are  and  how  punished 29 

appointment,  removal  and  districts  of 34,  43 

qualifications  of 35 

oath  of  office  of 36 

number  of      37 

jurisdiction  of 38 

duties  of 39 

compensation  of 40  a 

records  of 42 

absence  or  disability  of 43 

bonds  of 50 

REVISION,  petition  for,  to  Circuit  Court  of  Appeals     ....  24 

RULES,  Supreme  Court  shall  frame 30 

SALES,  how  to  be  made  by  trustee  or  assignee    . 70  b 

of  property,  notice  must  be  given 58  a  (4) 

SCHEDULES,  of  property  and  creditors,  when  must  be  filed   .  7  a  (8) 

debts  not  included  in,  are  not  discharged 17 

defective,  how  completed 39  (2)  (6) 

SECURED   CREDITOR,  meaning  of 1  (23) 

right  of,  to  vote 56  6 

claims  of,  allowed  for  provisional  amount  for  voting    ...  57  e 

proof  by 57  h 

SET-OFF,  when  allowed 68 

SOLVENCY,  when  a  defence  to  petition 3  c 


INDEX   TO   STATUTES.  xiii 

SECTION 

STATES,  meaning  of 1  (24) 

STATISTICS,  to  be  gathered  and  reported 53,  54 

STAY,  of  suits  against  bankrupt,  when  granted 11  a 

SUPREME  COURT  OF  THE  UNITED  STATES,  appellate 

jurisdiction  of 24,  25 

shall  frame  rules  . 30 

SUPREME    COURTS   OF   THE   TERRITORIES,    jurisdic- 
tion of 24,  25 

SURETIES,  not  discharged  by  discharge  of  bankrupt    ....  16 

on  bonds  of  trustee  and  referee 50  d-g 

may  prove,  if  creditor  does  not 57  i 

TAXES,  not  discharged 17 

to  have  priority 64  a 

TIME,  how  computed 31 

TITLE  TO  PROPERTY,  when,  and  of  what  passes  to  trustee  70 

TRADE-MARKS,  title  to,  passes  to  trustee 70  a 

TRANSFER,  meaning  of      1  (25) 

and  consolidation  of  cases 32 

from  one  referee  to  another   . 22  b 

TRUSTEE,  meaning  of 1  (26) 

offences  by 29 

office  of,  created 33 

appointment  of 44,  5  & 

qualifications  of 45 

duties  of 47  a,  70 

when  three,  two  must  concur  in  every  act 47  b 

compensation  of 48 

accounts  open  to  inspection 49 

bonds  of 50 

not  liable  for  penalties  incurred  by  bankrupt 50  i 

notice  of  filing  of  final  account  must  be  given 58  a  (6) 

takes  title  to  what  property 70 

shall  convey  title  to  purchaser  of  bankrupt's  estate      ...  70  c 
See  ASSIGNEE. 

VOLUNTARY  BANKRUPT,  who  may  be      4  a 

VOTERS,  who  may  be  at  meetings  of  creditors 56 

WAGE  EARNER,  meaning  of 1  (27) 

cannot  be  made  involuntary  bankrupt 46 

WAGES,  when  to  have  priority 64  b  (4) 

WARRANT,  to  marshal  to  take  debtor's  property 69 

WITNESS,  bound  to  attend 41 

fees  and  mileage  paid  to,  have  priority 64  b  (3) 

WRITS  OF  ERROR,  to  Supreme  Court 25 


CASES    ON    BANKRUPTCY. 


HISTORICAL   INTRODUCTION. 
ENGLAND. 

THE  first  bankrupt  act  in  England  was  34  &  35  Henry  VIII.  c.  4. 
The  object  was  to  assist  creditors  in  collecting  their  claims  if  their 
debtors,  by  absconding  or  keeping  within  their  houses,  made  ordinary 
process  inadequate.  To  this  end  the  Chancellor  and  other  officers  were 
empowered  to  take  the  bodies  of  "  such  offenders "  as  well  as  their 
property.  The  statute  further  provided  for  the  sale  of  the  property 
and  distribution  of  the  proceeds  ratably  among  the  creditors,  and  for 
the  detection,  avoiding,  and  punishment  of  fraudulent  conveyances 
and  detention  of  the  bankrupt's  property. 

The  next  statute,  13  Eliz.  c.  7,  confined  the  possibility  of  bankruptcy 
to  traders,  but  increased  the  number  of  acts  of  bankruptcy  to  six,  all, 
however,  like  those  in  the  preceding  act,  indicating  an  intent  to  defraud 
creditors  of  their  ordinary  legal  remedies  against  the  person  or  prop- 
erty of  their  debtors.  The  Chancellor  was  authorized  upon  complaint 
against  a  bankrupt  to  appoint  commissioners  to  take  charge  of  the 
bankrupt's  property  and  its  distribution.  The  bankrupt  was  required 
to  deliver  himself  up  after  proclamation,  on  penalty  of  fine  or  imprison- 
ment. From  the  construction  of  this  statute,  rather  than  from  its 
express  words,  the  doctrine  was  established  that  the  property  of  the 
bankrupt  passed  to  the  commissioners,  by  relation,  as  of  the  time  of 
the  first  act  of  bankruptc}r.  It  was  also  expressly  provided  that 
property  subsequently  acquired  by  the  bankrupt  should  pass  to  the 
commissioners.  The  creditors,  if  not  fully  paid  by  the  bankruptcy 
proceedings,  retained  their  ordinary  legal  remedies  against  their 
debtor. 

The  general  system  of  bankruptcy  legislation  shown  by  these  statutes 
—  a  quasi  criminal  proceeding  against  a  trader  seeking  to  defraud  his 
creditors  of  their  remedies,  a  proceeding  from  which  the  bankrupt  de- 
rived no  benefit  —  was  elaborated  by  later  statutes,  but  not  fundamen- 
tally changed  for  many  years.  The  important  changes  gradually  made 
by  later  statutes  may  be  briefly  stated  :  — 

1  James  I.  c.  15,  added  as  an  act  of  bankruptcy  lying  in  prison  six 
months  or  more  on  being  arrested  for  debt,  —  a  state  of  affairs  which 

i 


2  HISTORICAL   INTRODUCTION. 

might  occur  whenever  a  trader  was  insolvent,  though  not  fraudulent. 
It  also  introduced  the  first  protection  to  parties  dealing  with  one  who 
had  committed  an  act  of  bankruptcy,  but  without  notice  of  this  fact. 
A  debtor  of  the  bankrupt  who  paid  his  debt  under  such  circumstances 
was  discharged. 

21  James  I.  c.  19,  added  as  an  act  of  bankruptcy  mere  non-payment 
of  debts  to  amount  of  one  hundred  pounds  within  six  months  after  they 
were  due  and  process  served.  It  introduced  the  doctrine  that  if  bank- 
rupts "  shall,  by  the  consent  and  permission  of  the  true  owner  and 
proprietary,  have  in  their  possession,  order,  and  disposition  any  goods 
or  chattels  whereof  they  shall  be  reputed  owners,  and  take  upon  them 
the  sale,  alteration,  or  disposition  as  owners,"  the  commissioners  shall 
have  power  to  sell  such  goods  and  chattels  for  the  benefit  of  the  cred- 
itors. A  second  protected  transaction  was  established :  A  purchaser 
for  good  and  valuable  consideration  was  protected  from  the  effect  of 
any  act  of  bankruptcy  committed  five  years  or  more  before  suing  out 
of  the  commission. 

13  &  14  Charles  II.  c.  24,  was  passed  to  avoid  the  effect  of  the  deci- 
sion in  Wostenholme's  case,  in  which  Sir  John  Wostenholme  was  held 
to  be  a  trader  by  virtue  of  his  membership  in  the  East  India  Company, 
and  enacted  that  membership  in  that  company  and  similar  ones  should 
not  have  such  effect. 

4  &  5  Anne,  c.  17,  introduced   a  most  important  change  in  bank- 
ruptcy legislation.     It  had  been  found  that  bankrupts  were  not  suffi- 
ciently ready  to  surrender  themselves  and    their  property ;    and   to 
remedy  this,  the  penalty  for  failure  to  do  so  was  made  felon}-  without 
benefit  of  clergy  ;  and  at  the  same  time,  as  a  reward  for  surrendering 
himself  and  conforming  in  all  things  to  the  law,  it  was  provided  that  a 
bankrupt  should  receive  a  small  allowance  from  his  estate  and  a  dis- 
charge from  all  debts  due  before  the  bankruptcy.     These  benefits  were 
not  to  be  allowed  a  bankrupt  who  had  given  when  insolvent  above  one 
hundred  pounds  in  marriage  with  any  of  his  children,  or  who  had  lost 
at  gaming  five  pounds  in  one  day  or  one  hundred  pounds  within  the 
year  next  preceding  the  bankruptcy.     It  was  further  made  a  condition 
precedent  to  the  bankrupt's  rights  that  the  commissioners  should  cer- 
tify to  the  Chancellor  that  the  bankrupt  had  conformed  in  all  things  to 
the  act.     This  statute  also  first  provided  for  the  case  of  mutual  credit 
between  the  bankrupt  and  another,  though  in  practice  from  the  first 
the  commissioners  only  considered  the  balance  to  be  the  debt  due  to  or 
from  the  bankrupt.     The  act  was  to  continue  in  force  for  three  years. 

5  Anne,  c.  22,  added  as  a  prerequisite  to  the  bankrupt's  allowance 
and  discharge  that  the  certificate  required  by  the  preceding  act  should 
be  signed  by  four  parts  in  five  in  number  and  value  of  the  creditors 
who  had  proved  their  debts.     Assignees  to  take  charge  of  the  bank- 
rupt's propert}',  appointed  temporarily  by  the  commissioners,  and  after- 
wards chosen  by  a  majority  in  number  of  the  creditors  present,  were 
first  introduced  by  this  statute. 


HISTORICAL   INTRODUCTION.  3 

10  Anne,  c.  15,  repealed  some  acts  of  bankruptcy  introduced  by  21 
James  I.  c.  19,  especially  mere  non-payment  of  debts  to  the  amount  ol 
one  hundred  pounds  for  six  months  after  they  were  due  and  process 
served. 

5  George  I.  c.  24,  again  gave  bankrupts  the  benefit  of  discharge  and 
allowance  which  the}'  had  enjoyed  under  4  &  5  Anne,  c.  17,  during  the 
three  years  which  that  act  remained  in  force,  and  added  a  protection 
from  arrest  while  going  to,  staying  with,  or  coming  from  the  commis- 
sioners, in  obedience  to  their  summons.  An  additional  prerequisite  to 
the  granting  of  the  certificate  by  the  commissioners  was  established,  — 
the  oath  of  the  bankrupt  that  such  certificate  and  the  consent  of  the 
creditors  thereto  were  fairly  obtained.  The  petitioning  creditors  were 
required  to  give  bond  conditioned  on  establishing  their  claims  and  the 
bankruptcy  of  the  alleged  bankrupt.  The  act  was  limited  to  seven 
years. 

7  George  I.  c.  31,  permitted  proof  of  debts  not  due  at  the  time  of  the 
bankruptcy,  interest  being  deducted. 

5  George  II.  c.  30,  repeated,  with  some  modifications,  the  provisions 
of  4  &  5  Anne,  c.  17;  5  Anne,  c.  22  ;  5  George  I.  c.  24,  which  had 
lapsed  by  the  limitations  in  time  which  they  contained.  The  choice  of 
assignees  was  vested  in  the  creditors  having  the  majority  in  value, 
instead  of  in  number  as  formerly.  The  act  was  passed  for  but  three 
years,  but  was  continued  in  force  for  varying  periods  by  later  statutes 
passed  for  the  purpose,  and  was  made  perpetual  by  37  George  III. 
c.  124. 

19  George  II.  c.  32,  introduced  another  class  of  protected  trans- 
actions. Payments  made  in  the  ordinary  course  of  business  by  a 
bankrupt  after  an  act  of  bankruptcy,  but  before  the  suing  out  of  the 
commission  to  bona  fide  creditors  without  notice  of  any  act  of  bank- 
ruptcy, were  made  valid  and  not  recoverable  by  the  assignees. 

4  George  III.  c.  23,  was  passed  to  render  members  of  Parliament 
(who  were  exempt  from  arrest)  liable  to  bankruptcy  for  failure  to  pay 
or  secure  debts  for  two  months  after  suit. 

46  George  III.  c.  135,  protected  all  bona  fide  dealings  with  a  bank- 
rupt made  more  than  two  months  before  the  date  of  the  commission, 
provided  the  person  dealing  with  the  bankrupt  had  no  notice  of  any 
prior  act  of  bankruptc}-,  or  that  he  was  insolvent  or  had  stopped  pay- 
ment. Creditors  whose  claims  accrued  after  an  act  of  bankruptc}',  but 
before  the  date  of  the  commission,  if  they  had  no  notice  of  the  act 
of  bankruptcy,  were  given  the  same  rights  as  creditors  whose  claims 
accrued  before  the  act  of  bankruptcy.  f 

49  George  III.  c.  121,  provided  that  consent  of  three-fifths  instead 
of  four-fifths  in  number  and  value  of  the  creditors  should  suffice  for  the 
granting  of  the  certificate. 

Until  1824  the  law  of  bankruptcy  was  to  be  collected  from  all  the 
various  statutes  referred  to  above.  No  attempt  had  been  made  to 
codify  or  consolidate  the  various  statutes.  This  was  first  done  by 


4  HISTORICAL   INTRODUCTION. 

5  George  IV.  c.  98,  and  to  remedy  defects  in  this  act,  again  the  following 
}rear  by  6  George  IV.  c.  16.     The  latter  statute  made  the  first  approach 
to  the  allowance  of  voluntary  bankruptcy  proceedings.     Until  4  &  5 
Anne,  c.  17,  no  one  could  have  any  object  in  having  bankruptcy  pro- 
ceedings instituted  against  himself;  but  after  discharges  were  allowed 
this  was  frequently  desired,  and  to  attain  it  an  act  of  bankruptcy  was 
sometimes  purposely  committed  and  proceedings  instituted  with  the 
aid  of  friendly  creditors.     This  was  called  a  concerted  act  of  bank- 
ruptcy, and   had  been  treated  as  a  fraud  on  the  law ;  but  was  now 
authorized.     This  statute  also  made  provision  for  the  proof  of  con- 
tingent claims,  and  for  deeds  of  arrangement  by  which  an  insolvent 
might  with  the  consent  of  his  creditors  settle  his  affairs  without  becom- 
ing a  bankrupt. 

The  law  of  bankruptc)-  had  now,  partly  by  the  statutes  enumerated 
and  partly  by  judicial  decision,  been  developed  into  nearly  its  mod- 
ern form,  though  a  voluntary  petition  by  the  bankrupt  was  not  for- 
mally allowed  until  the  next  consolidated  bankruptc\"  act,  12  &  13 
Victoria,  c.  106.  There  have  been  three  later  consolidated  acts,  24  & 
25  Victoria,  c.  134  ;  32  &  33  Victoria,  c.  71  ;  and  46  &  47  Victoria, 
c.  52. 

The  first  of  these  made  non-traders  for  the  first  time  subject  to 
bankruptcy.  The  second  narrowed  the  doctrine  of  reputed  ownership, 
making  it  applicable  only  to  traders,  and  applicable  to  no  choses  in 
action  except  debts  due  to  the  bankrupt  in  the  course  of  his  trade.  A 
voluntary  settlement  b)*  a  trader  within  two  3~ears  of  bankruptcy  was 
made  void,  and  such  a  settlement  made  within  ten  years  of  bank- 
ruptcy was  made  void  unless  the  parties  claiming  under  the  settlement 
could  show  that  the  settlor  was  solvent  at  the  time  he  made  it.  This 
provision  has  been  extended  b}-  46  &  47  Victoria,  c.  52,  commonly 
called  the  Bankruptc)'  Act  of  1883,  to  settlements  by  any  bankrupt. 
The  Act  of  1883  was  amended  in  1890  by  53  &  54  Victoria,  c.  71,  which 
makes  elaborate  provision  in  regard  to  the  debtor's  discharge  (section  8). 
Various  requirements  had  been  made  by  successive  previous  statutes, 
some  more  favorable  to  the  debtor,  others  to  the  creditor.  By  the  Act 
of  1890  no  assent  of  creditors  is  necessary,  but  the  court  has  power 
not  only  to  refuse  a  discharge,  but  to  suspend  it  for  a  fixed  time,  or 
until  a  dividend  of  not  less  than  ten  shillings  in  the  pound  has  been 
paid  to  the  creditors,  or  to  require,  as  a  condition  of  the  discharge,  the 
bankrupt's  consent  to  judgment  against  himself  in  favor  of  the  official 
receiver  or  trustee  for  the  unpaid  balance  of  his  debts,  or  an)'  part 
of  it. 

THE  UNITED  STATES. 

Four  bankruptcy  acts  have  been  enacted  b}-  the  United  States,  the 
Act  of  April  4,  1800  (2  Stat.  19),  repealed  December  19,  1803  (2  Stat. 
248)  ;  the  Act  of  August  19,  1841  (5  Stat.  440),  repealed  March 
3,  1843  (5  Stat.  614);  the  Act  of  March  2,  1867  (14  Stat.  517), 


HISTORICAL   INTRODUCTION.  5 

amended  in  some  details  bj'  several  acts,1  especially  by  Act  of  June 
22,  1874  (18  Stat.  178),  and  consolidated  with  the  amendments  in  Rev. 
Stat.  §§  4972-5132,  repealed  June  7,  1878  (20  Stat.  99)  ;  the  Act  of 
July  1, 1898  (30  Stat.  544) ;  amended  in  1903,2  1906,8  and  1910.4 

The  Act  of  1800  followed  closely  the  model  of  the  existing  English 
bankruptcy  laws.  It  applied  to  traders  only;  the  acts  of  bankruptcy 
specified  included  not  only  acts  by  which  a  debtor  deprived  his  creditors 
of  remedies  against  his  person  or  property,  but  also  failure  to  give 
security  for  debts  on  which  he  had  been  arrested  or  his  property  at- 
tached. The  act  of  bankruptcy  relied  on  must  have  been  committed 
within  six  months  before  the  petition.  Voluntary  bankruptcy  was  not 
allowed.  Commissioners  were  appointed  by  the  District  Court  on  the 
petition  of  a  single  creditor  or  firm  having  a  claim  of  one  thousand 
dollars,  by  two  creditors  having  aggregate  claims  of  fifteen  hundred 
dollars,  or  by  more  than  two  creditors  having  aggregate  claims  of  two 
thousand  dollars.  A  bond  was  required  from  petitioning  creditors.  A 
temporary  assignee  might  be  appointed  by  the  court,  and  a  permanent 
assignee  was  chosen  by  the  majority  in  value  of  the  creditors.  The  as- 
signment by  the  commissioners  to  the  assignee  conveyed  by  relation 
the  bankrupt's  estate  as  of  the  time  of  the  commission  of  the  act  of 
bankruptcy,  but  a  bonafide  purchase  made  without  notice  of  any  act  of 
bankruptcy  before  the  issuing  of  the  commission  was  protected.  Prop- 
erty acquired  by  the  bankrupt  after  the  bankruptcy  and  before  discharge 
passed  to  the  assignee,  as  did  property  of  which  the  bankrupt  was  the 
reputed  owner.  Debts  due  at  a  future  day  were  made  provable,  and 
mutual  debts  were  allowed  to  be  set  off  against  each  other.  A  bank- 
rupt was  given  an  allowance  and  a  discharge  from  his  provable  debts 
on  conforming  to  the  requirements  of  the  act,  and  receiving  a  certificate 
to  that  effect  signed  by  the  commissioners  and  two-thirds  in  number 
and  value  of  the  creditors  who  had  proved  claims  in  excess  of  fifty  dol- 
lars respectively. 

The  Act  of  1841  departed  widely  from  the  previous  law  and  from  the 
English  precedents,  being  much  more  favorable  to  debtors.  It  united 
a  system  of  voluntary  bankruptcy  applicable  to  all  persons  owing  debts 
not  created  by  defalcation  with  a  system  of  involuntary  bankruptc}'  ap- 
plicable to  traders  only.  The  acts  of  bankruptcy  specified  by  the  act 
included  only  certain  acts  by  a  debtor  which  tended  to  deprive  a  cred- 
itor wrongfully  of  his  rights  or  remedies  against  his  debtor's  person  or 
property.  A  trader  might  be  insolvent  and  fail  to  pay  his  debts  'M  any 
extent  without  being  liable  to  bankruptcy.  Preferences  which  had  not 
been  mentioned  in  the  Act  of  1800,  nor  in  the  early  English  acts 
(though  the  courts  had  to  some  extent  supplied  the  omission),  were 

1  July  27,  1868  (15  Stat.  227)  ;  June  30,  1870   (16  Stat.  173);   July   14,  1870  (16 
Stat.  276) ;  June  8,  1872  (17  Stat.  3.34)  ;  Feb.  13,  1873  (17  Stat.  436) ;    March  3,  1873 
(17  Stat.  577) ;  June  22,  1874  (18  Stat.  178).     After  the  Revised  Statutes  were  issued 
the  law  was  further  amended  by  Acts  of  April  14,  1876  (19  Stat.  33) ;  July  26,  2876 
(19  Stat.  102). 

2  32  Stat.  797.  »  34  Stat.  267.  *  36  Stat.  838. 


6  HISTORICAL  INTRODUCTION. 

forbidden  and  made  voidable  b}-  the  assignee,  and  were  also  made 
ground  for  refusing  a  debtor's  discharge,  but  they  were  not  acts  of 
bankruptcy.  The  bankrupt's  property  passed  to  the  assignee  from  the 
time  of  the  decree  adjudicating  the  debtor  a  bankrupt,  not  from  the 
time  of  the  act  of  bankruptcy,  as  in  the  English  law  and  in  the  first 
United  States  act.  Property  acquired  by  the  bankrupt  after  the  date 
of  the  decree  did  not  pass, — a  striking  change  from  previous  laws, 
English  and  American.  Sureties,  indorsers,  and  other  holders  of  con- 
tingent claims,  as  well  as  creditors  whose  claims  were  not  3-et  due, 
were  given  a  right  to  prove.  A  debtor  who  had  not  been  guilty  of  an}* 
of  the  wrongful  acts  forbidden  by  the  act  was  entitled  to  a  certificate 
of  discharge,  unless  a  majority  in  number  and  value  of  creditors  who 
had  proved  their  debts  filed  a  written  dissent. 

The  Act  of  1867  did  not  greatly  vary  in  fundamental  theory  from  the 
Act  of  1841'.  The  Act  of  1898  with  its  amendments  is  printed  in  full 
hereafter. 

In  the  long  intervals  during  which  there  was  no  national  bankruptcy 
act  in  force,  most  of  the  States  made  provision  for  some  sort  of  bank- 
ruptcy or  insolvency  proceedings.  The  State  legislation  in  force  at  the 
time  of  the  passage  of  the  national  'act  of  1898  may  be  brieflj-  summar- 
ized as  follows :  — 

1.  Some  States  had  what  may  be  called  a  real  bankrupt  law  ;  that  is, 
provision  was  made  for  involuntar}*  as  well  as  voluntary  distribution 
of  a  debtor's  property,  and  a  discharge  from  all  provable  debts  was 
granted.     These  States  are  California,  Connecticut,  Georgia,  Louisiana, 
Maine,  Maryland,  Massachusetts,    Minnesota,    Nevada,  New  Hamp- 
shire, North  Dakota,  Rhode  Island. 

2.  In  the  other  States  the  insolvenc}1  laws  were  in  general  merely 
regulations  and  changes  of  more  or  less  importance  of  the  law  of  as- 
signments in  trust  for  creditors.     In  Kentuck}*,  New  Mexico,  Tennes- 
see, and  Wisconsin  a  preference  by  an  insolvent  debtor  operated  itself 
as  an  assignment  or  afforded  ground  for  the  appointment  of  a  receiver. 
But  with  this  exception  no  involuntary  proceedings  were  provided  for. 
A  few  States  belonging  to  this  class  allowed  a  debtor  making  a  volun- 
tary assignment  a  discharge  from  all  provable  debts  ;  namely,  Colorado, 
Idaho,  New  York,  Oregon,  Washington,  Wisconsin.     Others  allowed 
such  a  debtor  a  discharge  from  debts  actually  proved  ;  namely,  Arizona, 
Arkansas,   Indian  Territory,  New  Jersey,  South  Carolina,  Texas  (if 
creditors  received  33  J  per  cent),  Wyoming.     A  majority  of  the  States 
of  this  class  forbade  assignments  with  preferences,  but  a  considerable 
minority  allowed  them  ;  namely,  Arkansas,  Georgia,  Indian  Territory, 
Mississippi,  Montana,  New  York  (only  to  the  extent  of  one-third  of  the 
estate),  North  Carolina,  Utah,  Virginia.     In  many  other  States  there 
was   nothing  to   prevent  a  debtor  from  giving   preferences  when  in- 
solvent, and  then  making  a  general  assignment  of  such  property  as 
remained. 


PART  I. 
STATUTES. 


ACT  OF  JULY  1,  1898,  c.  541. 

[30  Statutes  at  Large,  544.] 

AN    ACT   TO    ESTABLISH    A    UNIFORM    SYSTEM    OF    BANKRUPTCY    THROUGH- 
OUT THE  UNITED  STATES. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled: 

CHAPTER  I. 

DEFINITIONS. 

SECTION  1 .  MEANING  OF  WORDS  AND  PHRASES.  —  a.  The  words 
and  phrases  used  in  this  Act,  and  in  proceedings  pursuant  thereto  shall, 
unless  the  same  be  inconsistent  with  the  context,  be  construed  as 
follows  :  (1)  "  A  person  against  whom  a  petition  has  been  filed  "  shall 
include  a  person  who  has  filed  a  voluntary  petition ;  (2)  "  adjudication  " 
shall  mean  the  date  of  the  entry  of  a  decree  that  the  defendant,  in  a 
bankruptcy  proceeding,  is  a  bankrupt,  or  if  such  decree  is  appealed 
from,  then  the  date  when  such  decree  is  finally  confirmed ;  (3)  ''appel- 
late courts  "  shall  include  the  circuit  courts  of  appeals  of  the  United 
States,  the  supreme  courts  of  the  Territories,  and  the  Supreme  Court 
of  the  United  States;  (4)  "bankrupt"  shall  include  a  person  against 
whom  an  involuntary  petition  or  an  application  to  set  a  composition 
aside  or  to  revoke  a  discharge  has  been  filed,  or  who  has  filed  a  volun- 
tary petition,  or  who  has  been  adjudged  a  bankrupt ;  (5)  "  clerk " 
shall  mean  the  clerk  of  a  court  of  bankruptcy;  (6)  "corporations" 
shall  mean  all  bodies  having  any  of  the  powers  and  privileges  of 
private  corporations  not  possessed  b}T  individuals  or  partnerships,  and 
shall  include  limited  or  other  partnership  associations  organized  under 
laws  making  the  capital  subscribed  alone  responsible  for  the  debts  of 
the  association;  (7)  "court"  shall  mean  the  court  of  bankruptcy  in 
which  the  proceedings  are  pending,  and  may  include  the  referee ; 
(8)  "  courts  of  bankruptcy  "  shall  include  the  district  courts  of  the 
United  States  and  of  the  Territories,  the  supreme  court  of  the  District 
of  Columbia,  and  the  United  States  court  of  the  Indian  Territory,  and 
of  Alaska;  (9)  "creditor"  shall  include  any  one  who  owns  a  demand 


8  CASES   ON   BANKRUPTCY.  [PART  L 

or  claim  provable  in  bankruptcy,  and  may  include  his  duly  authorized 
agent,  attorney,  or  proxy;  (10)  "date  of  bankruptcy,"  or  "time  of 
bankruptcy,"  or  "  commencement  of  proceedings,"  or  "  bankruptcy," 
with  reference  to  time,  shall  mean  the  date  when  the  petition  was 
filed  ;  (11)  "  debt"  shall  include  any  debt,  demand,  or  claim  provable 
in  bankruptc}' ;  (12)  "  discharge  "  shall  mean  the  release  of  a  bankrupt 
from  all  of  his  debts  which  are  provable  in  bankruptcy,  except  such  as 
are  excepted  by  this  Act;  (13)  "document"  shall  include  any  book, 
deed,  or  instrument  in  writing;  (14)  "holiday"  shall  include  Christ- 
mas, the  Fourth  of  July,  the  Twenty-second  of  February,  and  any  da\- 
appointed  by  the  President  of  the  United  States  or  the  Congress  of  the 
United  States  as  a  holiday  or  as  a  day  of  public  fasting  or  thanks- 
giving;  (15)  a  person  shall  be  deemed  insolvent  within  the  provisions 
of  this  Act  whenever  the  aggregate  of  his  property,  exclusive  of  any 
property  which  he  may  have  conveyed,  transferred,  concealed,  or 
removed,  or  permitted  to  be  concealed  or  removed,  with  intent  to 
defraud,  hinder  or  delay  his  creditors,  shall  not,  at  a  fair  valuation,  be 
sufficient  in  amount  to  pay  his  debts  ;  (16)  "judge  "  shall  mean  a  judge 
of  a  court  of  bankruptcy,  not  including  the  referee  ;  (17)  "  oath  "  shall 
include  affirmation;  (18)  "officer"  shall  include  clerk,  marshal,  re- 
ceiver, referee,  and  trustee,  and  the  imposing  of  a  duty  upon  or  the 
forbidding  of  an  act  by  any  officer  shall  include  his  successor  and  any 
person  authorized  by  law  to  perform  the  duties  of  such  officer;  (19) 
"  persons  "  shall  include  corporations,  except  where  otherwise  specified, 
and  officers,  partnerships,  and  women,  and  when  used  with  reference 
to  the  commission  of  acts  which  are  herein  forbidden  shall  include  per- 
sons who  are  participants  in  the  forbidden  acts,  and  the  agents,  officers, 
and  members  of  the  board  of  directors  or  trustees,  or  other  similar  con- 
trolling bodies  of  corporations  ;  (20)  "  petition  "  shall  mean  a  paper 
filed  in  a  court  of  bankruptcy  or  with  a  clerk  or  deputy  clerk  b}-  a 
debtor  praying  for  the  benefits  of  this  Act,  or  by  creditors  alleging 
the  commission  of  an  act  of  bankruptcy  by  a  debtor  therein  named  ; 

(21)  "  referee  "  shall  mean  the  referee  who  has  jurisdiction  of  the  case, 
or  to  whom  the  case  has  been  referred,  or  any  one  acting  in  his  stead  ; 

(22)  "conceal"  shall  include  secrete,  falsify,  and  mutilate;   (23)  "se- 
cured creditor  "  shall  include  a  creditor  who  has  security  for  his  debt 
upon  the  property  of  the  bankrupt  of  a  nature  to  be  assignable  under 
this  Act,  or  who  owns  such  a  debt  for  which  some  indorser,  suretj-,  or 
other   persons   secondarily  liable  for  the  bankrupt   has  such  security 
upon  the  bankrupt's  assets;  (24)  "States"  shall  include  the  Terri- 
tories, the    Indian  Territory,  Alaska,  and  the  District  of  Columbia ; 
(25)  "transfer"  shall  include  the  sale  and  ever}*  other  and  different 
mode  of  disposing  of  or  parting  with  property,  or  the  possession  of 
property,  absolutely  or  conditionally,  as  a  payment,  pledge,  mortgage, 
gift,  or  security ;  (26)  "  trustee"  shall  include  all  of  the  trustees  of  an 
estate;  (27)  "wage-earner"  shall  mean  an  individual  who  works  for 
wages,  salar}-,  or  hire,  at  a  rate  of  compensation  not  exceeding  one 


PART  I.]  STATUTES.  9 

thousand  five  hundred  dollars  per  year  ;  (28)  words  importing  the  mas- 
culine gender  may  be  applied  to  and  include  corporations,  partnerships, 
and  women  ;  (29)  words  importing  the  plural  number  may  be  applied 
to  and  mean  only  a  single  person  or  thing ;  (30)  words  importing 
the  singular  number  may  be  applied  to  and  mean  several  persons  or 
things. 

CHAPTER  II. 

CREATION    OF   COURTS    OF    BANKRUPTCY   AND   THEIR   JURISDICTION. 

SECT.  2.  That  the  courts  of  bankruptcy  as  hereinbefore  defined, 
viz.,  the  district  courts  of  the  United  States  in  the  several  States,  the 
supreme  court  of  the  District  of  Columbia,  the  district  courts  of  the 
several  Territories,  and  the  United  States  courts  in  the  Indian  Ter- 
ritory and  the  District  of  Alaska,  are  hereb}'  made  courts  of  bank- 
ruptcy, and  are  hereby  invested,  within  their  respective  territorial  limits 
as  now  established,  or  as  they  may  be  hereafter  changed,  with  such  ju- 
risdiction at  law  and  in  equity  as  will  enable  them  to  exercise  original 
jurisdiction  in  bankruptcy  proceedings,  in  vacation  in  chambers  and  dur- 
ing their  respective  terms,  as  they  are  now  or  may  be  hereafter  held, 
to  (1)  adjudge  persons  bankrupt  who  have  had  their  principal  place  of 
business,  resided  or  had  their  domicile  within  their  respective  terri- 
torial jurisdictions  for  the  preceding  six  months,  or  the  greater  portion 
thereof,  or  who  do  not  have  their  principal  place  of  business,  reside  or 
have  their  domicile  within  the  United  States,  but  have  property  within 
their  jurisdictions,  or  who  have  been  adjudged  bankrupts  by  courts  of 
competent  jurisdiction  without  the  United  States  and  have  property 
within  their  jurisdiction  ;  (2)  allow  claims,  disallow  claims,  reconsider 
allowed  or  disallowed  claims,  and  allow  or  disallow  them  against  bank- 
rupt estates ;  (3)  appoint  receivers  or  the  marshals,  upon  application  of 
parties  in  interest,  in  case  the  courts  shall  find  it  absolutely  necessair, 
for  the  preservation  of  estates,  to  take  charge  of  the  property  of  bank- 
rupts after  the  filing  of  the  petition  and  until  it  is  dismissed  or  the  trus- 
tee is  qualified  ;  (4)  arraign,  try,  and  punish  bankrupts,  officers,  and 
other  persons,  and  the  agents,  officers,  members  of  the  board  of  direc- 
tors or  trustees,  or  other  similar  controlling  bodies,  of  corporations,  for 
violations  of  this  Act,  in  accordance  with  the  laws  of  procedure  of 
the  United  States  now  in  force,  or  such  as  may  be  hereafter  enacted, 
regulating  trials  for  the  alleged  violation  of  laws  of  the  United  States  ; 
(5)  authorize  the  business  of  bankrupts  to  be  conducted  for  limited 
periods  by  receivers,  the  marshals,  or  trustees,  if  necessary  in  the  best 
interests  of  the  estates,1  and  allow  such  officers  additional  compensa- 
tion for  such  services,  as  provided  in  section  forty-eight  of  this  Act ; 

1  The  remainder  of  this  sentence  was  added  by  the  Amendment  of  1903,  except 
that  the  final  clause  which  hy  that  amendment  read  :  "  hut  not  at  a  greater  rate  than 
in  this  Act  allowed  for  similar  services"  was  amended  in  1910. 


10  CASES   ON   BANKRUPTCY.  [PART  I. 

(6)  bring  in  and  substitute  additional  persons  or  parties  in  pro- 
ceedings in  bankruptcy  when  necessary  for  the  complete  determina- 
tion of  a  matter  in  controversy ;  (7)  cause  the  estates  of  bankrupts 
to  be  collected,  reduced  to  money,  and  distributed,  and  determine 
controversies  in  relation  thereto,  except  as  herein  otherwise  provided  ; 
(8)  close  estates,  whenever  it  appears  that  they  have  been  fully  adminis- 
tered, by  approving  the  final  accounts  and  discharging  the  trustees,  and 
reopen  them  whenever  it  appears  they  were  closed  before  being  fully 
administered ;  (9)  confirm  or  reject  compositions  between  debtors  and 
their  creditors,  and  set  aside  compositions  and  reinstate  the  cases; 
(10)  consider  and  confirm,  modify  or  overrule,  or  return,  with  instruc- 
tions for  further  proceedings,  records  and  findings  certified  to  them  by 
referees;  (11)  determine  all  claims  of  bankrupts  to  their  exemptions; 
(12)  discharge  or  refuse  to  discharge  bankrupts  and  set  aside  dis- 
charges and  reinstate  the  cases  ;  (13)  enforce  obedience  by  bankrupts, 
officers,  and  other  persons  to  all  lawful  orders,  by  fine  or  imprison- 
ment or  fine  and  imprisonment ;  (14)  extradite  bankrupts  from  their 
respective  districts  to  other  districts ;  (15)  make  such  orders,  issue  such 
process,  and  enter  such  judgments  in  addition  to  those  specifically  pro- 
vided for  as  may  be  necessary  for  the  enforcement  of  the  provisions  of 
this  Act ;  (16)  punish  persons  for  contempts  committed  before  referees ; 
(17)  pursuant  to  the  recommendation  of  creditors,  or  when  they  neglect 
to  recommend  the  appointment  of  trustees,  appoint  trustees,  and  upon 
complaints  of  creditors,  remove  trustees  for  cause  upon  hearings  and 
after  notices  to  them ;  (18)  tax  costs,  whenever  they  are  allowed  by 
law,  and  render  judgments  therefor  against  the  unsuccessful  party,  or 
the  successful  party  for  cause,  or  in  part  against  each  of  the  parties, 
and  against  estates,  in  proceedings  in  bankruptcy ;  (19)  transfer  cases 
to  other  courts  of  bankruptcy l ;  and  (20)  exercise  ancillary  juris- 
diction over  persons  or  property  within  their  respective  territorial 
limits  in  aid  of  a  receiver  or  trustee  appointed  in  any  bankruptcy  pro- 
ceedings pending  in  any  other  court  of  bankruptcy. 

Nothing  in  this  section  contained  shall  be  construed  to  deprive  a 
court  of  bankruptcy  of  any  power  it  would  possess  were  certain  specific 
powers  not  herein  enumerated. 


CHAPTER  III. 

BANKRUPTS. 

SECT.  3.  ACTS  OF  BANKRUPTCY.  —  a.  Acts  of  bankruptcy  by  a  per- 
son shall  consist  of  his  having  (1)  conveyed,  transferred,  concealed,  or 
removed,  or  permitted  to  be  concealed  or  removed,  any  part  of  his 
property  with  intent  to  hinder,  delay,  or  defraud  his  creditors,  or  any 
of  them  ;  or  (2)  transferred,  while  insolvent,  any  portion  of  his  prop- 

1  The  remainder  of  this  sentence  was  added  by  the  Amendment  of  1910. 


PART  I.]  STATUTES.  11 

erty  to  one  or  more  of  his  creditors  with  intent  to  prefer  such  creditors 
over  his  other  creditors  ;  or  (3)  suffered  or  permitted,  while  insolvent, 
any  creditor  to  obtain  a  preference  through  legal  proceedings,  and  not 
having  at  least  five  days  before  a  sale  or  final  disposition  of  any  prop- 
erty affected  by  such  preference  vacated  or  discharged  such  preference  ; 
or  (4)  made  a  general  assignment  for  the  benefit  of  his  creditors,1  or, 
being  insolvent,  applied  for  a  receiver  or  trustee  for  his  property  or 
because  of  insolvency  a  receiver  or  trustee  has  been  put  in  charge  of 
his  property  under  the  laws  of  a  State,  of  a  Territory,  or  of  the  United 
States;  or  (5)  admitted  in  writing  his  inability  to  pa\r  his  debts  and 
his  willingness  to  be  adjudged  a  bankrupt  on  that  ground. 

b.  A  petition  may  be  filed  against  a  person  who  is  insolvent  and  who 
has  committed  an  act  of  bankruptcy  within  four  months  after  the  com- 
mission of  such  act.    Such  time  shall  not  expire  until  four  months  after 
(1)  the  date  of  the  recording  or  registering  of  the  transfer  or  assign- 
ment when  the  act  consists  ia  having  made  a  transfer  of  any  of  his 
property  with  intent  to  hinder,  delay,  or  defraud  his  creditors  or  for  the 
purpose  of  giving  a  preference  as  hereinbefore  provided,  or  a  general 
assignment  for  the  benefit  of  his  creditors,  if  by  law  such  recording  or 
registering  is  required  or  permitted,  or,  if  it  is  not,  from  the  date  when 
the  beneficiary  takes  notorious,  exclusive,  or  continuous  possession  of 
the  property  unless  the  petitioning  creditors  have  received  actual  notice 
of  such  transfer  or  assignment. 

c.  It  shall  be  a  complete  defence  to  any  proceedings  in  bankruptcy 
instituted  under  the  first  subdivision  of  this  section  to  allege  and  prove 
that  the  party  proceeded  against  was  not  insolvent  as  defined  in  this 
Act  at  the  time  of  the  filing  the  petition  against  him,  and  if  solvency  at 
such  date  is  proved  by  the  alleged  bankrupt  the  proceedings  shall  be 
dismissed,  and  under  said  subdivision  one  the  burden  of  proving  sol- 
vency shall  be  on  the  alleged  bankrupt. 

d.  Whenever  a  person  against  whom  a  petition  has  been  filed  as 
hereinbefore  provided  under  the  second  and  third  subdivisions  of  this 
section  takes  issue  with  and  denies  the  allegation  of  his  insolvency,  it 
shall  be  his  duty  to  appear  in  court  on  the  hearing,  with  his  books, 
papers,  and  accounts,  and  submit  to  an  examination,  and  give  testi- 
mony as  to  all  matters  tending  to  establish  solvency  or  insolvency,  and 
in  case  of  his  failure  to  so  attend  and  submit  to  examination  the  burden 
of  proving  his  solvency  shall  rest  upon  him. 

e.  Whenever  a  petition  is  filed  by  any  person  for  the  purpose  of  hav- 
ing another  adjudged  a  bankrupt,  and  an  application  is  made  to  take 
charge  of  and  hold  the  property  of  the  alleged  bankrupt  or  any  part  of 
the  same,  prior  to  the  adjudication  and  pending  a  hearing  on  the  peti- 
tion, the  petitioner  or  applicant  shall  file  in  the  same  court  a  bond,  with 
at  least  two  good  and  sufficient  sureties,  who  shall  reside  within  the  ju- 
risdiction of  said  court,  to  be  approved  by  the  court  or  a  judge  thereof, 
in  such  sum  as  the  court  shall  direct,  conditioned  for  the  payment,  in 

1  The  remainder  of  clause  (4)  was  added  by  the  Amendment  of  1903. 


12  CASES    ON    BANKRUPTCY.  [PART  I. 

case  such  petition  is  dismissed,  to  the  respondent,  his  or  her  personal 
representatives,  all  costs,  expenses,  and  damages  occasioned  by  such 
seizure,  taking,  and  detention  of  the  property  of  the  alleged  bankrupt. 

If  such  petition  be  dismissed  by  the  court  or  withdrawn  by  the  peti- 
tioner, the  respondent  or  respondents  shall  be  allowed  all  costs,  counsel 
fees,  expenses,  and  damages  occasioned  by  such  seizure,  taking,  or  de- 
tention of  such  property.  Counsel  fees,  costs,  expenses,  and  damages 
shall  be  fixed  and  allowed  by  the  court,  and  paid  by  the  obligors  in 
such  bond. 

SECT.  4.  WHO  MAT  BECOME  BANKRUPTS.  —  a.  Any  person,  except  a 
municipal,  railroad,  insurance,  or  banking  Corporation,  shall  be  en- 
titled to  the  benefits  of  this  Act  as  a  voluntary  bankrupt.1 

6.  An}*  natural  person,  except  a  wage-earner  or  a  person  engaged 
chiefly  in  farming  or  the  tillage  of  the  soil,  any  unincorporated  com- 
pany,2 and  any  moneyed,  business,  or  commercial  corporation,  except 
a  municipal,  railroad,  insurance,  or  banking  corporation,  owing  debts 
to  the  amount  of  one  thousand  dollars  or  over,  may  be  adjudged  an 
involuntary  bankrupt  upon  default  or  an  impartial  trial,  and  shall  be 
subject  to  the  provisions  and  entitled  to  the  benefits  of  this  Act. 

The  bankruptcy  of  a  corporation  shall  not  release  its  officers,  direc- 
tors, or  stockholders,  as  such,  from  any  liability  under  the  laws  of  a 
State  or  Territory  of  the  United  States.8 

SECT.  5.  PARTNERS.  —  a.  A  partnership,  during  the  continuation  of 
the  partnership  business,  or  after  its  dissolution  and  before  the  final 
settlement  thereof,  may  be  adjudged  a  bankrupt 

b.  The  creditors  of  the  partnership  shall  appoint  the  trustee ;  in 
other  respects  so  far  as  possible  the  estate  shall  be  administered  as 
herein  provided  for  other  estates. 

c.  The  court  of  bankruptcy  which  has  jurisdiction  of  one  of  the 
partners  may  have  jurisdiction  of  all  the  partners  and  of  the  adminis- 
tration of  the  partnership  and  individual  property. 

d.  The  trustees  shall  keep   separate  accounts  of  the  partnership 
property  and  of  the  property  belonging  to  the  individual  partners. 

e.  The  expenses  shall  be  paid  from  the  partnership  property  and  the 
individual  property  in  such  proportions  as  the  court  shall  determine. 

/.  The  net  proceeds  of  the  partnership  property  shall  be  appropri- 

1  Prior  to  the  Amendment  of  1910,  the    clause  read:   a.  Any  person  who  owes 
debts,  except  a  corporation,  shall  be  entitled  to  the  benefits  of  this  Act  as  a  voluntary 
bankrupt. 

2  Prior  to  the  Amendment  of  1910,  the  remainder  of  the  paragraph  was  as  follows : 
and  any  corporation  engaged  principally  in  manufacturing,  trading,  printing,  pub- 
lishing, mining  or  mercantile  pursuits,  owing  debts  to  the  amount  of  one  thousand  dol- 
lars or  over,  may  be  adjudged  an  involuntary  bankrupt  upon  default  or  an  impartial 
trial,  and  shall  be  subject  to  the  provisions  and  entitled  to  the  benefits  of  this  Act. 
Private  bankers,  but  not  national  banks  or  banks  incorporated  under  State  or  Territo- 
rial laws,  may  be  adjudged  involuntary  bankrupts. 

The  word  "  mining"  was  inserted  by  the  Amendment  of  1903. 
8  This  sentence  was  inserted  by  the  Amendment  of  1910. 


PART  I.]  STATUTES.  13 

ated  to  the  payment  of  the  partnership  debts,  and  the  net  proceeds  of 
the  individual  estate  of  each  partner  to  the  payment  of  his  individual 
debts.  Should  any  surplus  remain  of  the  property  of  any  partner  after 
paying  his  individual  debts,  such  surplus  shall  be  added  to  the  partner- 
ship assets  and  be  applied  to  the  payment  of  the  partnership  debts. 
Should  any  surplus  of  the  partnership  property  remain  after  paying 
the  partnership  debts,  such  surplus  shall  be  added  to  the  assets  of  the 
individual  partners  in  the  proportion  of  their  respective  interests  in  the 
partnership. 

g.  The  court  may  permit  the  proof  of  the  claim  of  the  partnership 
estate  against  the  individual  estates,  and  vice  versa,  and  may  marshal 
the  assets  of  the  partnership  estate  and  individual  estates  so  as  to  pre- 
vent preferences  and  secure  the  equitable  distribution  of  the  property 
of  the  several  estates. 

h.  In  the  event  of  one  or  more  but  not  all  of  the  members  of  a 
partnership  being  adjudged  bankrupt,  the  partnership  property  shall 
not  be  administered  in  bankruptcy,  unless  by  consent  of  the  partner  or 
partners  not  adjudged  bankrupt ;  but  such  partner  or  partners  not  ad- 
judged bankrupt  shall  settle  the  partnership  business  as  expeditiously 
as  its  nature  will  permit,  and  account  for  the  interest  of  the  partner  or 
partners  adjudged  bankrupt. 

SECT.  6.  EXEMPTIONS  OF  BANKRUPTS.  —  a.  This  Act  shall  not  affect 
the  allowance  to  bankrupts  of  the  exemptions  which  are  prescribed  by 
the  State  laws  in  force  at  the  time  of  the  filing  of  the  petition  in  the 
State  wherein  they  have  had  their  domicile  for  the  six  months  or  the 
greater  portion  thereof  immediately  preceding  the  filing  of  the  petition. 

SECT.  7.  DUTIES  OF  BANKRUPTS. — a.  The  bankrupt  shall  (1)  attend 
the  first  meeting  of  his  creditors,  if  directed  by  the  court  or  a  judge 
thereof  to  do  so,  and  the  hearing  upon  his  application  for  a  discharge, 
if  filed;  (2)  comply  with  all  lawful  orders  of  the  court;  (3)  examine 
the  correctness  of  all  proofs  of  claims  filed  against  his  estate  ;  (4)  exe- 
cute and  deliver  such  papers  as  shall  be  ordered  by  the  court ;  (5)  exes- 
cute  to  his  trustee  transfers  of  all  his  property  in  foreign  countries ; 
(6)  immediately  inform  his  trustee  of  any  attempt,  by  his  creditors  or 
other  persons,  to  evade  the  provisions  of  this  Act  coming  to  his  knowl- 
edge ;  (7)  in  case  of  any  person  having  to  his  knowledge  proved  a  false 
claim  against  his  estate,  disclose  that  fact  immediately  to  his  trustee ; 
(8)  prepare,  make  oath  to,  and  file  in  court  within  ten  days,  unless 
further  time  is  granted,  after  the  adjudication,  if  an  involuntary  bank- 
rupt, and  with  the  petition  if  a  voluntary  bankrupt,  a  schedule  of  his 
property,  showing  the  amount  and  kind  of  property,  the  location  thereof, 
its  money  value  in  detail,  and  a  list  of  his  creditors,  showing  their 
residences  if  known,  if  unknown,  that  fact  to  be  stated,  the  amounts 
due  each  of  them,  the  consideration  thereof,  the  security  held  by  them, 
if  any,  and  a  claim  for  such  exemptions  as  he  may  be  entitled  to,  all 
in  triplicate,  one  copy  of  each  for  the  clerk,  one  for  the  referee,  and 
one  for  the  trustee ;  and  (9)  when  present  at  the  first  meeting  of  his 


14  CASES   ON   BANKRUPTCY.  [PART  I. 

creditors,  and  at  such,  other  times  as  the  court  shall  order,  submit  to 
an  examination  concerning  the  conducting  of  his  business,  the  cause  of 
his  bankruptcy,  his  dealings  with  his  creditors  and  other  persons,  the 
amount,  kind,  and  whereabouts  of  his  property,  and,  in  addition,  all 
matters  which  may  affect  the  administration  and  settlement  of  his 
estate;  but  no  testimony  given  by  him  shall  be  offered  in  evidence 
against  him  in  any  criminal  proceeding. 

Provided,  however,  That  he  shall  not  be  required  to  attend  a  meeting 
of  his  creditors,  or  at  or  for  an  examination  at  a  place  more  than  one 
hundred  and  fifty  miles  distant  from  his  home  or  principal  place  of 
business,  or  to  examine  claims  except  when  presented  to  him,  unless 
ordered  by  the  court,  or  a  judge  thereof,  for  cause  shown,  and  the 
bankrupt  shall  be  paid  his  actual  expenses  from  the  estate  when 
examined  or  required  to  attend  at  any  place  other  than  the  city, 
town,  or  village  of  his  residence. 

SECT.  8.  DEATH  OR  INSANITY  OF  BANKRUPTS.  —  a.  The  death  or 
insanity  of  a  bankrupt  shall  not  abate  the  proceedings,  but  the  same 
shall  be  conducted  and  concluded  in  the  same  manner,  so  far  as  pos- 
sible, as  though  he  had  not  died  or  become  insane  :  Provided,  That  in 
case  of  death  the  widow  and  children  shall  be  entitled  to  all  rights  of 
dower  and  allowance  fixed  by  the  laws  of  the  State  of  the  bankrupt's 
residence. 

SECT.  9.  PROTECTION  AND  DETENTION  OP  BANKRUPTS.  —  a.  A  bank- 
rupt shall  be  exempt  from  arrest  upon  civil  process  except  in  the  fol- 
lowing cases :  (1)  When  issued  from  a  court  of  bankruptcy  for  contempt 
or  disobedience  of  its  lawful  orders;  (2)  when  issued  from  a  State 
court  having  jurisdiction,  and  served  within  such  State,  upon  a  debt 
or  claim  from  which  his  discharge  in  bankruptcy  would  not  be  a  release, 
and  in  such  case  he  shall  be  exempt  from  such  arrest  when  in  attend- 
ance upon  a  court  of  bankruptcy  or  engaged  in  the  performance  of  a 
duty  imposed  by  this  Act. 

b.  The  judge  may,  at  any  time  after  the  filing  of  a  petition  by  or 
against  a  person,  and  before  the  expiration  of  one  month  after  the 
qualification  of  the  trustee,  upon  satisfactory  proof  by  the  affidavits  of 
at  least  two  persons  that  such  bankrupt  is  about  to  leave  the  district  in 
which  he  resides  or  has  his  principal  place  of  business  to  avoid  examina- 
tion, and  that  his  departure  will  defeat  the  proceedings  in  bankruptcy, 
issue  a  warrant  to  the  marshal,  directing  him  to  bring  such  bankrupt 
forthwith  before  the  court  for  examination.  If  upon  hearing  the  evi- 
dence of  the  parties  it  shall  appear  to  the  court  or  a  judge  thereof  that 
the  allegations  are  true  and  that  it  is  necessary,  he  shall  order  such 
marshal  to  keep  such  bankrupt  in  custody  not  exceeding  ten  days,  but 
not  imprison  him,  until  he  shall  be  examined  and  released  or  give  bail 
conditioned  for  his  appearance  for  examination,  from  time  to  time,  not 
exceeding  in  all  ten  days,  as  required  by  the  court,  and  for  his  obe- 
dience to  all  lawful  orders  made  in  reference  thereto. 

SECT.  10.    EXTRADITION  OF  BANKRUPTS.  —  a.  Whenever  a  warrant 


PART  I.]  STATUTES.  15 

for  the  apprehension  of  a  bankrupt  shall  have  been  issued,  and  he  shall 
have  been  found  within  the  jurisdiction  of  a  court  other  than  the  one 
issuing  the  warrant,  he  may  be  extradited  in  the  same  manner  in  which 
persons  under  indictment  are  now  extradited  from  one  district  within 
which  a  district  court  has  jurisdiction  to  another. 

SECT.  11.  Suns  BY  AND  AGAINST  BANKRUPTS.  —  a.  A  suit  which  is 
founded  upon  a  claim  for  which  a  discharge  would  be  a  release,  and 
which  is  pending  against  a  person  at  the  time  of  the  filing  of  a  petition 
against  him,  shall  be  stayed  until  after  an  adjudication  or  the  dismissal 
of  the  petition;  if  such  person  is  adjudged  a  bankrupt,  such  action 
may  be  further  stayed  until  twelve  months  after  the  date  of  such  adju- 
dication, or,  if  within  that  time  such  person  applies  for  a  discharge, 
then  until  the  question  of  such  discharge  is  determined. 

b.  The  court  may  order  the  trustee  to  enter  his  appearance  and  de- 
fend any  pending  suit  against  the  bankrupt. 

c.  A  trustee  may,  with  the  approval  of  the  court,  be  permitted  to 
prosecute  as  trustee  any  suit  commenced  by  the  bankrupt  prior  to  the 
adjudication,  with  like  force  and  effect  as  though  it  had  been  com- 
menced by  him. 

d.  Suits  shall  not  be  brought  by  or  against  a  trustee  of  a  bankrupt 
estate  subsequent  to  two  years  after  the  estate  has  been  closed. 

SECT.  12.  COMPOSITIONS,  WHEN  CONFIRMED.  —  a.  A  bankrupt  may 
offer,  either  before  or  after  adjudication,  terms  of  composition  to  his 
creditors  after,  but  not  before,  he  has  been  examined  in  open  court  or 
at  a  meeting  of  his  creditors,  and  has  filed  in  court  the  schedule  of  his 
property  and  the  list  of  his  creditors  required  to  be  filed  by  bankrupts. 
In  compositions  before  adjudication  the  bankrupt  shall  file  the  re- 
quired schedules,  and  thereupon  the  court  shall  call  a  meeting  of 
creditors  for  the  allowance  of  claims,  examination  of  the  bankrupt, 
and  preservation  or  conduct  of  estates,  at  which  meeting  the  judge  or 
referee  shall  preside ;  and  action  upon  the  petition  for  adjudication 
shall  be  delayed  until  it  shall  be  determined  whether  such  composition 
shall  be  confirmed.1 

6.  An  application  for  the  confirmation  of  a  composition  may  be  filed 
in  the  court  of  bankruptcy  after,  but  not  before,  it  has  been  accepted 
in  writing  by  a  majority  in  number  of  all  creditors  whose  claims  have 
been  allowed,  which  number  must  represent  a  majority  in  amount  of 
such  claims,  and  the  consideration  to  be  paid  by  the  bankrupt  to  his 
creditors,  and  the  money  necessary  to  pay  all  debts  which  have  priority 
and  the  cost  of  the  proceedings,  have  been  deposited  in  such  place  as 
shall  be  designated  by  and  subject  to  the  order  of  the  judge. 

c.  A  date  and  place,  with  reference  to  the  convenience  of  the  parties 
in  interest,  shall  be  fixed  for  the  hearing  upon  each  application  for  the 

1  Prior  to  the  Amendment  of  1910  this  subdivision  read:  A  bankrupt  may  offer 
terms  of  composition  to  his  creditors  after,  but  not  before,  he  has  been  examined  in 
open  court  or  at  a  meeting  of  his  creditors  and  filed  in  court  the  schedule  of  his  prop- 
erty and  list  of  his  creditors,  required  to  be  filed  by  bankrupts. 


16  CASES  ON  BANKRUPTCY.  [PART  I. 

confirmation  of  a  composition,  and  such  objections  as  may  be  made  to 
its  confirmation. 

d.  The  judge  shall  confirm  a  composition  if  satisfied  that  (1)  it  is  for 
the  best  interests  of  the  creditors  ;  (2)  the  bankrupt  has  not  been  guilty 
of  any  of  the  acts  or  failed  to  perform  any  of  the  duties  which  would  be 
a  bar  to  his  discharge ;  and  (3)  the  offer  and  its  acceptance  are  in  good 
faith  and  have  not  been  made  of  procured  except  as  herein  provided, 
or  by  any  means,  promises,  or  acts  herein  forbidden. 

e.  Upon  the  confirmation  of  a  composition,  the  consideration  shall 
be  distributed  as  the  judge  shall  direct,  and  the  case  dismissed.    When- 
ever a  composition  is  not  confirmed,  the  estate  shall  be  administered  in 
bankruptcy  as  herein  provided. 

SECT.  13.  COMPOSITIONS,  WHEN  SET  ASIDE.  —  a.  The  judge  may, 
upon  the  application  of  parties  in  interest  filed  at  any  time  within  six 
months  after  a  composition  has  been  confirmed,  set  the  same  aside  and 
reinstate  the  case  if  it  shall  be  made  to  appear  upon  a  trial  that  fraud 
was  practised  in  the  procuring  of  such  composition,  and  that  the  knowl- 
edge thereof  has  come  to  the  petitioners  since  the  confirmation  of 
such  composition. 

SECT.  14.  DISCHARGES,  WHEN  GRANTED.  —  a.  Any  person  may, 
after  the  expiration  of  one  month  and  within  the  next  twelve  months 
subsequent  to  being  adjudged  a  bankrupt,  file  an  application  for  a  dis- 
charge in  the  court  of  bankruptcy  in  which  the  proceedings  are  pend- 
ing ;  if  it  shall  be  made  to  appear  to  the  judge  that  the  bankrupt  was 
unavoidably  prevented  from  filing  it  within  such  time,  it  may  be  filed 
within  but  not  after  the  expiration  of  the  next  six  months. 

b.  The  judge  shall  hear  the  application  for  a  discharge  and  such 
proofs  and  pleas  as  may  be  made  in  opposition  thereto  by  the  trustee 
or  other  parties  in  interest,  at  such  time  as  will  give  the  trustee  or 
parties  in  interest  a  reasonable  opportunity  to  be  fully  heard,  and 
investigate  the  merits  of  the  application  and  discharge  the  applicant 
unless  he  has  (1)  committed  an  offense  punishable  by  imprisonment  as 
herein  provided;  or  (2)  with  intent  to  conceal  his  financial  condition, 
destroyed,  concealed,  or  failed  to  keep  books  of  account  or  records 
from  which  such  condition  might  be  ascertained ;  or  (3)  obtained 
money  or  property  on  credit  upon  a  materially  false  statement  in 
writing,  made  by  him  to  any  person  or  his  representative  for  the 
purpose  of  obtaining  credit  from  such  person ;  or  (4)  at  any  time 
subsequent  to  the  first  day  of  the  four  months  immediately  preceding 
the  filing  of  the  petition  transferred,  removed,  destroyed,  or  con- 
cealed, or  permitted  to  be  removed,  destroyed,  or  concealed,  any  of 
his  property,  with  intent  to  hinder,  delay,  or  defraud  his  creditors; 
or  (5)  in  voluntary  proceedings  been  granted  a  discharge  in  bank- 
ruptcy within  six  years;  or  (6)  in  the  course  of  the  proceedings  in 
bankruptcy  refused  to  obey  any  lawful  order  of,  or  to  answer  any 
material  question  approved  by  the  court:  Provided,  That  a  trustee 
shall  not  interpose  objections  to  a  bankrupt's  discharge  until  he  shall 


PART  I.]  STATUTES.  17 

be  authorized  so  to  do  at  a  meeting  of  creditors  called  for  that 
purpose.1 

c.  The  confirmation  of  a  composition  shall  discharge  the  bankrupt 
from  his  debts,  other  than  those  agreed  to  be  paid  by  the  terms  of  the 
composition  and  those  not  affected  by  a  discharge. 

SECT.  15.  DISCHARGES,  WHEN  REVOKED.  —  a.  The  judge  may,  upon 
the  application  of  parties  in  interest  who  have  not  been  guilty  of  undue 
laches,  filed  at  any  time  within  one  year  after  a  discharge  shall  have 
been  granted,  revoke  it  upon  a  trial  if  it  shall  be  made  to  ap- 
pear that  it  was  obtained  through  the  fraud  of  the  bankrupt,  and 
that  the  knowledge  of  the  fraud  has  come  to  the  petitioners  since  the 
granting  of  the  discharge,  and  that  the  actual  facts  did  not  warrant 
the  discharge. 

SECT.  16.  CO-DEBTORS  OF  BANKRUPTS.  —  a.  The  liability  of  a  person 
who  is  co-debtor  with,  or  guarantor  or  in  any  manner  a  surety  for,  a 
bankrupt  shall  not  be  altered  by  the  discharge  of  such  bankrupt. 

SECT.  17.  DEBTS  NOT  AFFECTED  BY  A  DISCHARGE.  —  a.  A  discharge 
in  bankruptcy  shall  release  a  bankrupt  from  all  of  his  provable  debts, 
except  such  as  (1)  are  due  as  a  tax  levied  by  the  United  States,  the 
State,  county,  district,  or  municipality  in  which  he  resides;  (2)  are 
liabilities  for  obtaining  property  by  false  pretences  or  false  representa- 
tions, or  for  wilful  and  malicious  injuries  to  the  person  or  property 
of  another,  or  for  alimony  due  or  to  become  due,  or  for  maintenance 
or  support  of  wife  or  child,  or  for  seduction  of  an  unmarried  female, 
or  for  criminal  conversation2 ;  (3)  have  not  been  duly  scheduled  in  time 
for  proof  and  allowance,  with  the  name  of  the  creditor  if  known  to  the 
bankrupt,  unless  such  creditor  had  notice  or  actual  knowledge  of  the 

1  This  subdivision  in  the  original  act  read :  b.  The  judge  shall  hear  the  applica- 
tion for  a  discharge,  and  such  proofs  and  pleas  as  may  be  made  in  opposition  thereto 
by  parties  in  interest,  at  such  time  as  will  give  parties  in  interest  a  reasonable  oppor- 
tunity to  be  fully  heard,  and  investigate  the  merits  of  the  application  and  discharge 
the  applicant  unless  he  has  (1)  committed  an  offence  punishable  by  imprisonment  as 
herein  provided ;  or  (2)  with  fraudulent  intent  to  conceal  his  true  financial  condition 
and  in  contemplation  of  bankruptcy,  destroyed,  concealed,  or  failed  to  keep  books  of 
account  or  records  from  which  his  true  condition  might  be  ascertained. 

In  1903  the  subdivision  was  amended  after  the  words  "as  herein  provided"  so  as 
to  read  as  follows :  or  (2)  with  intent  to  conceal  his  financial  condition,  destroyed, 
concealed,  or  failed  to  keep  books  of  account  or  records  from  which  such  condition 
might  be  ascertained ;  or  (3)  obtained  property  on  credit  from  any  person  upon  a 
materially  false  statement  in  writing  made  to  such  person  for  the  purpose  of  obtain- 
ing such  property  on  credit ;  or  (4)  at  any  time  subsequent  to  the  first  day  of  the  four 
months  immediately  preceding  the  filing  of  the  petition  transferred,  removed,  de- 
stroyed, or  concealed,  or  permitted  to  be  removed,  destroyed,  or  concealed,  any  of  his 
property  with  intent  to  hinder,  delay,  or  defraud  his  creditors ;  or  (5)  in  voluntary 
proceedings  been  granted  a  discharge  in  bankruptcy  within  six  years;  or  (6)  in  the 
course  of  the  proceedings  in  bankruptcy  refused  to  obey  any  lawful  order  of  or  to 
answer  any  material  question  approved  by  the  court. 

2  Prior  to  the  Amendment  of  1910  this  clause  read  :  (2)  are  judgments  in  actions 
for  frauds,  or  obtaining  property  by  false  pretences  or  false  representations,  or  for 
wilful  and  malicious  injuries  to  the  person  or  property  of  another. 


18  CASES   ON   BANKRUPTCY.  [PART  I. 

proceedings  in  bankruptcy ;  or  (4)  were  created  by  his  fraud,  embez- 
zlement, misappropriation,  or  defalcation  while  acting  as  an  officer  or 
in  any  fiduciary  capacity. 


CHAPTER   IV. 

COURTS    AND    PROCEDURE    THEREIN. 

SECT.  18.  PROCESS,  PLEADINGS,  AND  ADJUDICATIONS.  —  a.  Upon  the 
filing  of  a  petition  for  involuntary  bankruptcy,  service  thereof,  with  a 
writ  of  subpo3na,  shall  be  made  upon  the  person  therein  named  as  de- 
fendant in  the  same  manner  that  service  of  such  process  is  now  had 
upon  the  commencement  of  a  suit  in  equity  in  the  courts  of  the  United 
States,  except  that  it  shall  be  returnable  within  fifteen  days,  unless  the 
judge  shall  for  cause  fix  a  longer  time;  but  in  case  personal  service 
can  not  be  made,  then  notice  shall  be  given  by  publication  in  the  same 
manner  and  for  the  same  time  as  provided  by  law  for  notice  by  publi- 
cation in  suits1  to  enforce  a  legal  or  equitable  lien  iu  courts  of  the 
United  States,  except  that,  unless  the  judge  shall  otherwise  direct,  the 
order  shall  be  published  not  more  than  once  a  week  for  two  consecutive 
weeks,  and  the  return  day  shall  be  ten  days  after  the  last  publication 
unless  the  judge  shall  for  cause  fix  a  longer  time. 

b.  The  bankrupt,   or   any  creditor,   may  appear  and   plead  to  the 
petition  within  five2  days  after  the  return  day,  or  within  such  further 
time  as  the  court  may  allow. 

c.  All  pleadings  setting  up  matters  of  fact  shall  be  verified  under 
oath. 

d.  If  the  bankrupt,  or  any  of  his  creditors,  shall  appear,  within  the 
time  limited,  and  controvert  the  facts  alleged  in  the  petition,  the  judge 
shall  determine,  as  soon  as  may  be,  the  issues  presented  by  the  plead- 
ings, without  the  intervention  of  a  jury,  except  in  cases  where  a  jury 
trial  is  given  by  this  Act,  and  make  the  adjudication  or  dismiss  the 
petition. 

e.  If  on  the  last  day  within  which  pleadings  may  be  filed  none  are 
filed  by  the  bankrupt  or  any  of  his  creditors,  the  judge  shall  on  the 
next  day,  if  present,  or  as  soon  thereafter  as  practicable,  make  the 
adjudication  or  dismiss  the  petition. 

/  If  the  judge  is  absent  from  the  district,  or  the  division  of  the  dis- 
trict in  which  the  petition  is  pending,  on  the  next  day  after  the  last 
day  on  which  pleadings  may  be  filed,  and  none  have  been  filed  by  the 
bankrupt  or  any  of  his  creditors,  the  clerk  shall  forthwith  refer  the  case 
to  the  referee. 

g.  Upon  the  filing  of  a  voluntary  petition  the  judge  shall  hear  the 
petition  and  make  the  adjudication  or  dismiss  the  petition.  If  the 

1  Prior  to  the  Amendment  of  1903  the  remainder  of  the  subdivision  after  suits,  read 
"in  equity  in  courts  of  the  United  States." 

a  Prior  to  the  Amendment  of  1903  "  ten  days  "  was  the  period  allowed  by  the  statute 


PAKT  I.]  STATUTES.  19 

judge  is  absent  from  the  district,  or  the  division  of  the  district  in  which 
the  petition  is  filed  at  the  time  of  the  filing,  the  clerk  shall  forthwith 
refer  the  case  to  the  referee. 

SECT.  19.  JURY  TRIALS.  —  a.  A  person  against  whom  an  involuntary 
petition  has  been  filed  shall  be  entitled  to  have  a  trial  by  jury,  in  re- 
spect, to  the  question  of  his  insolvency,  except  as  herein  otherwise 
provided,  and  any  act  of  bankruptcy  alleged  in  such  petition  to  have 
been  committed,  upon  filing  a  written  application  therefor  at  or  before 
the  time  within  which  an  answer  may  be  filed.  If  such  application  is 
not  filed  within  such  time,  a  trial  by  jury  shall  be  deemed  to  have  been 
waived. 

b.  If  a  jury  is  not  in  attendance  upon  the  court,  one  may  be  specially 
summoned  for  the  trial,  or  the  case  may  be  postponed,  or,  if  the  case 
is  pending  in  one  of  the  district  courts  within  the  jurisdiction  of  a  cir- 
cuit court  of  the  United   States,  it  may  be  certified  for  trial  to  the 
circuit  court  sitting  at  the  same  place,  or  by  consent  of  parties  when 
sitting  at  any  other  place  in  the  same  district,  if  such  circuit  court  has 
or  is  to  have  a  jury  first  in  attendance. 

c.  The  right  to  submit  matters  in  controversy,  or  an  alleged  offence 
under  this  Act,  to  a  jury  shall  be  determined  and  enjoyed,  except 
as  provided  by  this  Act,  according  to  the  United  States  laws  now 
in  force  or  such  as  may  be  hereafter  enacted  in  relation  to  trials  by 
jury. 

SECT.  20.  OATHS,  AFFIRMATIONS.  —  a.  Oaths  required  by  this  Act, 
except  upon  hearings  in  court,  may  be  administered  by  (1)  referees; 
(2)  officers  authorized  to  administer  oaths  in  proceedings  before  the 
courts  of  the  United  States,  or  under  the  laws  of  the  State  where  the 
same  are  to  be  taken ;  and  (3)  diplomatic  or  consular  officers  of  the 
United  States  in  any  foreign  country. 

6.  Any  person  conscientiously  opposed  to  taking  an  oath  may,  in  lieu 
thereof,  affirm.  Any  person  who  shall  affirm  falsely  shall  be  punished 
as  for  the  making  of  a  false  oath. 

SECT.  21.  EVIDENCE.  — a.  A  court  of  bankruptcy  may,  upon  appli- 
cation of  any  officer,  bankrupt,  or  creditor,  by  order  require  any  desig- 
nated person,  including  the  bankrupt1  and  his  wife,  to  appear  in  court 
or  before  a  referee  or  the  judge  of  any  State  court,  to  be  examined 
concerning  the  acts,  conduct,  or  property  of  a  bankrupt  whose  estate 
is  in  process  of  administration  under  this  Act :  Provided,  That  the  wife 
may  be  examined  only  touching  business  transacted  by  her  or  to  which 
she  is  a  party,  and  to  determine  the  fact  whether  she  has  transacted 
or  been  a  party  to  any  business  of  the  bankrupt. 

b.  The  right  to  take  depositions  in  proceedings  under  this  Act  shall 

1  Prior  to  the  Amendment  of  1903  after  the  word  "bankrupt"  the  subdivision 
read:  Who  is  a  competent  witness  under  the  laws  of  the  State  in  which  the  proceed- 
ings are  pending,  to  appear  in  court  or  before  a  referee  or  the  judge  of  any  State  court, 
to  be  examined  concerning  the  acts,  conduct,  or  property  of  a  bankrupt  whose  estate 
is  in  process  of  administration  under  this  Act. 


20  CASES   ON    BANKRUPTCY.  [PART  I. 

be  determined  and  enjoyed  according  to  the  United  States  laws  now  in 
force,  or  such  as  may  be  hereafter  enacted  relating  to  the  taking  of 
depositions,  except  as  herein  provided. 

c.  Notice  of  the  taking  of  depositions  shall  be  filed  with  the  referee 
in  every  case.     When  depositions  are  to  be  taken  in  opposition  to  the 
allowance  of  a  claim  notice  shall  also  be  served  upon  the  claimant, 
and  when  in  opposition  to  a  discharge  notice  shall  also  be  served  upon 
the  bankrupt. 

d.  Certified  copies  of  proceedings  before  a  referee,  or  of  papers, 
when  issued  by  the  clerk  or  referee,  shall  be  admitted  as  evidence 
with  like  force  and  effect  as  certified  copies  of  the  records  of  district 
courts  of  the  United  States  are  now  or  may  hereafter  be  admitted  as 
evidence. 

e.  A  certified  copy  of  the  order  approving  the  bond  of  a  trustee  shall 
constitute  conclusive  evidence  of  the  vesting  in  him  of  the  title  to  the 
property  of  the  bankrupt,  and  if  recorded  shall  impart  the  same  notice 
that  a  deed  from  a  bankrupt  to  the  trustee  if  recorded  would  have 
imparted  had  not  bankruptcy  proceedings  intervened. 

/.  A  certified  copy  of  an  order  confirming  or  setting  aside  a  compo- 
sition, or  granting  or  setting  aside  a  discharge,  not  revoked,  shall  be 
evidence  of  the  jurisdiction  of  the  court,  the  regularity  of  the  proceed- 
ings, and  of  the  fact  that  the  order  was  made. 

g.  A  certified  copy  of  an  order  confirming  a  composition  shall  con- 
stitute evidence  of  the  revesting  of  the  title  of  his  property  in  the 
bankrupt,  and  if  recorded  shall  impart  the  same  notice  that  a  deed 
from  the  trustee  to  the  bankrupt  if  recorded  would  impart. 

SECT.  22.  REFERENCE  OF  CASES  AFTER  ADJUDICATION.  —  a.  After  a 
person  has  been  adjudged  a  bankrupt,  the  judge  may  cause  the  trustee 
to  proceed  with  the  administration  of  the  estate,  or  refer  it  (1)  gener- 
ally to  the  referee  or  specially  with  only  limited  authority  to  act  in 
the  premises  or  to  consider  and  report  upon  specified  issues ;  or  (2)  to 
any  referee  within  the  territorial  jurisdiction  of  the  court,  if  the  con- 
venience of  parties  in  interest  will  be  served  thereby,  or  for  cause,  or 
if  the  bankrupt  does  not  do  business,  reside,  or  have  his  domicile  in 
the  district. 

6.  The  judge  may,  at  any  time,  for  the  convenience  of  parties  or  for 
cause,  transfer  a  case  from  one  referee  to  another. 

SECT.  23.  JURISDICTION  OF  UNITED  STATES  AND  STATE  COURTS.  — 
a.  The  United  States  circuit  courts  shall  have  jurisdiction  of  all  contro- 
versies at  law  and  in  equity,  as  distinguished  from  proceedings  in 
bankruptcy,  between  trustees  as  such  and  adverse  claimants  concerning 
the  property  acquired  or  claimed  by  the  trustees,  in  the  same  manner 
and  to  the  same  extent  only  as  though  bankruptcy  proceedings  had  not 
been  instituted  and  such  controversies  had  been  between  the  bankrupts 
and  such  adverse  claimants. 

b.  Suits  by  the  trustee  shall  only  be  brought  or  prosecuted  in  the 
courts  where  the  bankrupt,  whose  estate  is  being  administered  by  such 


PART  I.]  STATUTES.  21 

trustee,  might  have  brought  or  prosecuted  them  if  proceedings  in 
bankruptcy  had  not  been  instituted,  unless  by  consent  of  the  proposed 
defendant,1  except  suits  for  the  recovery  of  property  under  section 
sixty,  subdivision  6 ;  section  sixty-seven,  subdivision  e ;  and  section 
seventy,  subdivision  e. 

c.  The  United  States  circuit  courts  shall  have  concurrent  jurisdiction 
with  the  courts  of  bankruptcy,  within  their  respective  territorial  limits, 
of  the  offences  enumerated  in  this  act. 

SECT.  24.  JURISDICTION  OF  APPELLATE  COURTS. — a.  The  Supreme 
Court  of  the  United  States,  the  circuit  courts  of  appeals  of  the  United 
States,  and  the  supreme  courts  of  the  Territories,  in  vacation  in  cham- 
bers and  during  their  respective  terms,  as  now  or  as  they  may  be 
hereafter  held,  are  hereby  invested  with  appellate  jurisdiction  of  con- 
troversies arising  in  bankruptcy  proceedings  from  the  courts  of  bank- 
ruptcy from  which  they  have  appellate  jurisdiction  in  other  cases.  The 
Supreme  Court  of  the  United  States  shall  exercise  a  like  jurisdiction 
from  courts  of  bankruptcy  not  within  any  organized  circuit  of 
the  United  States  and  from  the  supreme  court  of  the  District  of 
Columbia. 

b.  The  several  circuit  courts  of  appeal  shall  have  jurisdiction  in 
equity,  either  interlocutory  or  final,  to  superintend  and  revise  in  matter 
of  law  the  proceedings  of  the  several  inferior  courts  of  bankruptcy 
within  their  jurisdiction.  Such  power  shall  be  exercised  on  due  notice 
and  petition  by  any  party  aggrieved. 

SECT.  25.  APPEALS  AND  WRITS  OF  ERROR.  —  a.  That  appeals,  as  in 
equity  cases,  may  be  taken  in  bankruptcy  proceedings  from  the  courts 
of  bankruptcy  to  the  circuit  court  of  appeals  of  the  United  States,  and 
to  the  supreme  court  of  the  Territories,  in  the  following  cases,  to  wit : 
(1)  from  a  judgment  adjudging  or  refusing  to  adjudge  the  defendant  a 
bankrupt ;  (2)  from  a  judgment  granting  or  denying  a  discharge  ;  and 
(3)  from  a  judgment  allowing  or  rejecting  a  debt  or  claim  of  five  hun- 
dred dollars  or  over.  Such  appeal  shall  be  taken  within  ten  days  after 
the  judgment  appealed  from  has  been  rendered,  and  may  be  heard  and 
determined  by  the  appellate  court  in  term  or  vacation,  as  the  case 
may  be. 

b.  From  any  final  decision  of  a  court  of  appeals,  allowing  or  rejecting 
a  claim  under  this  Act,  an  appeal  may  be  had  under  such  rules  and 
within  such  time  as  may  be  prescribed  by  the  Supreme  Court  of  the 
United  States,  in  the  following  cases  and  no  other:  — 

1.  Where  the  amount  in  controversy  exceeds  the  sum  of  two  thou- 
sand dollars,  and  the  question  involved  is  one  which  might  have  been 
taken  on  appeal  or  writ  of  error  from  the  highest  court  of  a  State  to 
the  Supreme  Court  of  the  United  States ;  or 

2.  Where  some  Justice  of  the  Supreme  Court  of  the  United  States 

1  This  subdivision  in  the  original  Act  ended  with  the  word  "defendant."  By  the 
Amendment  of  1903  the  exception  of  sections  60 b  and  67 e  was  made;  and  by  the 
Amendment  of  1910  section  70 e  was  also  excepted. 


22  CASES   ON   BANKRUPTCY.  [PART  I. 

shall  certify  that  in  his  opinion  the  determination  of  the  question  or 
questions  involved  in  the  allowance  or  rejection  of  such  claim  is 
essential  to  a  uniform  construction  of  this  Act  throughout  the  United 
States. 

c.  Trustees  shall   not  be  required  to  give  bond  when  they  take 
appeals  or  sue  out  writs  of  error. 

d.  Controversies  may  be  certified    to  the   Supreme  Court  of   the 
United  States  from  other  courts  of  the  United  States,  and  the  former 
court  may  exercise  jurisdiction  thereof  and  issue  writs  of  certiorari 
pursuant  to  the  provisions  of  the  United  States  laws  now  in  force  or 
such  as  may  be  hereafter  enacted. 

SECT.  26.  ARBITRATION  OF  CONTROVERSIES.  —  a.  The  trustee  may, 
pursuant  to  the  direction  of  the  court,  submit  to  arbitration  any  contro 
versy  arising  in  the  settlement  of  the  estate. 

6.  Three  arbitrators  shall  be  chosen  by  mutual  consent,  or  one  by 
the  trustee,  one  by  the  other  party  to  the  controversy,  and  the  third 
by  the  two  so  chosen,  or  if  they  fail  to  agree  in  five  days  after  their 
appointment  the  court  shall  appoint  the  third  arbitrator. 

c.  The  written  finding  of  the  arbitrators,  or  a  majority  of  them,  as 
to  the  issues  presented,  may  be  filed  in  court,  and  shall  have  like  force 
and  effect  as  the  verdict  of  a  jury. 

SECT.  27.  COMPROMISES.  —  a.  The  trustee  may,  with  the  approval  of 
the  court,  compromise  any  controversy  arising  in  the  administration  of 
the  estate  upon  such  terms  as  he  may  deem  for  the  best  interests  of  toe 
estate. 

SECT.  28.  DESIGNATION  OF  NEWSPAPERS.  —  a.  Courts  of  bankruptcy 
shall  by  order  designate  a  newspaper  published  within  their  respective 
territorial  districts,  and  in  the  county  in  which  the  bankrupt  resides  or 
the  major  part  of  his  property  is  situated,  in  which  notices  required  to 
be  published  by  this  Act,  and  orders  which  the  court  may  direct  to  be 
published,  shall  be  inserted.  Any  court  may  in  a  particular  case,  for 
the  convenience  of  parties  in  interest,  designate  some  additional  news- 
paper in  which  notices  and  orders  in  such  case  shall  be  published. 

SECT.  29.  OFFENCES.  —  a.  A  person  shall  be  punished,  by  imprison- 
ment for  a  period  not  to  exceed  five  years,  upon  conviction  of  the 
offence  of  having  knowingly  and  fraudulently  appropriated  to  his  own 
use,  embezzled,  spent,  or  unlawfully  transferred  any  property  or 
secreted  or  destroyed  any  document  belonging  to  a  bankrupt  estate 
which  came  into  his  charge  as  trustee. 

b.  A  person  shall  be  punished,  by  imprisonment  for  a  period  not  to 
exceed  two  years,  upon  conviction  of  the  offence  of  having  knowingly 
and  fraudulently  (1)  concealed  while  a  bankrupt,  or  after  his  discharge, 
from  his  trustee  any  of  the  property  belonging  to  his  estate  in  bank- 
ruptcy ;  or  (2)  made  a  false  oath  or  account  in,  or  in  relation  to,  any 
proceeding  in  bankruptcy;  (3)  presented  under  oath  any  false  claim 
for  proof  against  the  estate  of  a  bankrupt,  or  used  any  such  claim  in 
composition  personally  or  by  agent,  proxy,  or  attorney,  or  as  agent, 


PAKT  I.J  STATUTES.  23 

proxy,  or  attorney ;  or  (4)  received  any  material  amount  of  property 
from  a  bankrupt  after  the  filing  of  the  petition,  with  intent  to  defeat 
this  Act;  or  (5)  extorted  or  attempted  to  extort  any  mdney  or  prop- 
erty from  any  person  as  a  consideration  for  acting  or  forbearing  to  act 
in  bankruptcy  proceedings. 

c.  A  person  shall  be  punished  by  fine,  not  to  exceed  five  hundred 
dollars,  and  forfeit  his  office,  and  the  same  shall  thereupon  become 
vacant,  upon  conviction  of  the  offence  of  having  knowingly  (1)  acted 
as  a  referee  in  a  case  in  which  he  is  directly  or  indirectly  interested ; 
or  (2)  purchased,  while  a  referee,  directly  or  indirectly,  any  property  of 
the  estate  in  bankruptcy  of  which  he  is  referee ;  or  (3)  refused,  while 
a  referee  or  trustee,  to  permit  a  reasonable  opportunity  for  the  inspec- 
tion of  the  accounts  relating  to  the  affairs  of,   and  the  papers  and 
records  of,  estates  in  his  charge  by  parties  in  interest  when  directed 
by  the  court  so  to  do. 

d.  A  person  shall  not  be  prosecuted  for  any  offence  arising  under 
this  Act  unless  the  indictment  is  found  or  the  information  is  filed  in 
court  within  one  year  after  the  commission  of  the  offence. 

SECT.  30.  RULES,  FORMS,  AND  ORDERS.  —  a.  All  necessary  rules, 
forms,  and  orders  as  to  procedure,  and  for  carrying  this  Act  into  force 
and  effect,  shall  be  prescribed,  and  may  be  amended  from  time  to  time, 
by  the  Supreme  Court  of  the  United  States. 

SECT.  31.  COMPUTATION  OF  TIME.  —  a.  Whenever  time  is  enumerated 
by  days  in  this  Act,  or  in  any  proceeding  in  bankruptcy,  the  number  of 
days  shall  be  computed  by  excluding  the  first  and  including  the  last, 
unless  the  last  fall  on  a  Sunday  or  holiday,  in  which  event  the  day  last 
included  shall  be  the  next  day  thereafter  which  is  not  a  Sunday  or  a 
legal  holiday. 

SECT.  32.  TRANSFER  OF  CASES.  —  a.  In  the  event  petitions  are  filed 
against  the  same  person,  or  against  different  members  of  a  partnership, 
in  different  courts  of  bankruptcy,  each  of  which  has  jurisdiction,  the 
cases  shall  be  transferred,  by  order  of  the  courts  relinquishing  jurisdic- 
tion, to  and  be  consolidated  by  the  one  of  such  courts  which  can  pro- 
ceed with  the  same  for  the  greatest  convenience  of  parties  in  interest. 


CHAPTER  V. 

OFFICERS,    THEIR   DUTIES    AND    COMPENSATION. 

SECT.  33.  CREATION  OF  Two  OFFICES.  —  a.  The  offices  of  referee 
and  trustee  are  hereby  created. 

SECT.  34.  APPOINTMENT,  REMOVAL,  AND  DISTRICTS  OF  REFEREES. 
—  a.  Courts  of  bankruptcy  shall,  within  the  territorial  limits  of  which 
they  respectively  have  jurisdiction,  (1)  appoint  referees,  each  for  a 
term  of  two  years,  and  may,  in  their  discretion,  remove  them  because 
their  services  are  not  needed  or  for  other  cause ;  and  (2)  designate,  and 


24  CASES  ON  BANKRUPTCY.  [PART  1 

from  time  to  time  change,  the  limits  of  the  districts  of  referees,  so  that 
each  county,  where  the  services  of  a  referee  are  needed,  may  constitute 
at  least  one  district. 

SECT.  35.  QUALIFICATIONS  OP  REFEREES.  — a.  Individuals  shall 
not  be  eligible  to  appointment  as  referees  unless  they  are  respectively 
(1)  competent  to  perform  the  duties  of  that  office ;  (2)  not  holding  any 
office  of  profit  or  emolument  under  the  laws  of  the  United  States  or  of 
any  State  other  than  commissioners  of  deeds,  justices  of  the  peace, 
masters  in  chancery,  or  notaries  public;  (3)  not  related  by  con- 
sanguinity or  affinity,  within  the  third  degree  as  determined  by  the 
common  law,  to  any  of  the  judges  of  the  courts  of  bankruptcy  or  circuit 
courts  of  the  United  States,  or  of  the  justices  or  judges  of  the  appellate 
courts  of  the  districts  wherein  they  may  be  appointed ;  and  (4)  resi- 
dents of,  or  have  their  offices  in,  the  territorial  districts  for  which  they 
are  to  be  appointed. 

SECT.  36.  OATHS  OF  OFFICE  OF  REFEREES.  —  a.  Referees  shall 
take  the  same  oath  of  office  as  that  prescribed  for  judges  of  United 
States  courts. 

SECT.  37.  NUMBER  OF  REFEREES.  —  a.  Such  number  of  referees 
shall  be  appointed  as  may  be  necessary  to  assist  in  expeditiously 
transacting  the  bankruptcy  business  pending  in  the  various  courts  of 
bankruptcy. 

SECT.  38.  JURISDICTION  OF  REFEREES  —  a.  Referees  respectively 
are  hereby  invested,  subject  always  to  a  review  by  the  judge,  within 
the  limits  of  their  districts  as  established  from  time  to  time,  with  juris- 
diction to  (1)  consider  all  petitions  referred  to  them  by  the  clerks  and 
make  the  adjudications  or  dismiss  the  petitions ;  (2)  exercise  the 
powers  vested  in  courts  of  bankruptcy  for  the  administering  of  oaths  to 
and  the  examination  of  persons  as  witnesses  and  for  requiring  the  pro- 
duction of  documents  in  proceedings  before  them,  except  the  power  of 
commitment;  (3)  exercise  the  powers  of  the  judge  for  the  taking 
possession  and  releasing  of  the  property  of  the  bankrupt  in  the  event 
of  the  issuance  by  the  clerk  of  a  certificate  showing  the  absence  of  a 
judge  from  the  judicial  district,  or  the  division  of  the  district,  or  his 
sickness,  or  inability  to  act;  (4)  perform  such  part  of  the  duties, 
except  as  to  questions  arising  out  of  the  applications  of  bankrupts  for 
compositions  or  discharges,  as  are  by  this  Act  conferred  on  courts  of 
bankruptcy  and  as  shall  be  prescribed  by  rules  or  orders  of  the  courts 
of  bankruptcy  of  their  respective  districts,  except  as  herein  otherwise 
provided  ;  and  (5)  upon  the  application  of  the  trustee  during  the  exam- 
ination of  the  bankrupts,  or  other  proceedings,  authorize  the  employ- 
ment of  stenographers  at  the  expense  of  the  estates  at  a  compensation 
not  to  exceed  ten  cents  per  folio  for  reporting  and  transcribing  the 
proceedings. 

SECT.  39.  DUTIES  OF  REFEREES.  —  a.  Referees  shall  (1)  declare 
dividends  and  prepare  and  deliver  to  trustees  dividend  sheets  showing 
the  dividends  declared  and  to'whom  payable  ;  (2)  examine  all  schedules 


PART  I.]  STATUTES.  25 

of  property  and  lists  of  creditors  filed  by  bankrupts  and  cause  such  as 
are  incomplete  or  defective  to  be  amended;  (3)  furnish  ^uch  informa- 
tion concerning  the  estates  in  process  of  administration  before  them  as 
may  be  requested  by  the  parties  in  interest;  (4)  give  notices  to 
creditors  as  herein  provided ;  (5)  make  up  records  embodying  the  evi- 
dence, or  the  substance  thereof,  as  agreed  upon  by  the  parties  in  all 
contested  matters  arising  before  them,  whenever  requested  to  do,  so 
by  either  of  the  parties  thereto,  together  with  their  findings  therein,  and 
transmit  them  to  the  judges ;  (6)  prepare  and  file  the  schedules  of 
property  and  lists  of  creditors  required  to  be  filed  by  the  bankrupts,  or 
cause  the  same  to  be  done,  when  the  bankrupts  fail,  refuse,  or  neglect 
to  do  so;  (7)  safely  keep,  perfect,  and  transmit  to  the  clerks  the 
records,  herein  required  to  be  kept  by  them,  when  the  cases  are  con- 
cluded ;  (8)  transmit  to  the  clerks  such  papers  as  may  be  on  file  before 
them  whenever  the  same  are  needed  in  any  proceedings  in  courts,  and 
in  like  manner  secure  the  return  of  such  papers  after  they  have  been 
used,  or,  if  it  be  impracticable  to  transmit  the  original  papers,  transmit 
certified  copies  thereof  by  mail;  (9)  upon  application  of  any  party  in 
interest,  preserve  the  evidence  taken  or  the  substance  thereof  as  agreed 
upon  by  the  parties  before  them  when  a  stenographer  is  not  in  attend- 
ance ;  and  (10)  whenever  their  respective  offices  are  in  the  same  cities 
or  towns  where  the  courts  of  bankruptcy  convene,  call  upon  and 
receive  from  the  clerks  all  papers  filed  in  courts  of  bankruptcy  which 
have  been  referred  to  them. 

b.  Keferees  shall  not  (1)  act  in  cases  in  which  they  are  directly  or 
indirectly  interested;  (2)  practise  as  attorneys  and  counsellors  at  law 
in  any  bankruptcy  proceedings  ;  or  (3)  purchase,  directly  or  indirectly, 
any  property  of  an  estate  in  bankruptcy. 

SECT.  40.  COMPENSATION  OF  REFEREES.  —  a.  Referees  shall  re- 
ceive as  full  compensation  for  their  services,  payable  after  they  are 
rendered,  a  fee  of  fifteen1  dollars  deposited  with  the  clerk  at  the  time 
the  petition  is  filed  in  each  case,  except  when  a  fee  is  not  required  from 
a  voluntary  bankrupt,2  and  twenty-five  cents  for  ^every  proof  of  claim 
filed  for  allowance,  to  be  paid  from  the  estate,  if  any,  as  a  part  of  the 
cost  of  administration,  and  from  estates  which  have  been  administered 
before  them  one  per  centum  commissions  on  all  moneys  disbursed  to 
creditors  by  the  trustee,  or  one  half  of  one  per  centum  on  the  amount 
to  be  paid  to  creditors  upon  the  confirmation  of  a  composition. 

b.  Whenever  a  case  is  transferred  from  one  referee  to  another  the 
judge  shall  determine  the  proportion  in  which  the  fee  and  commissions 
therefor  shall  be  divided  between  the  referees. 

c.  In  the  event  of  the  reference  of  a  case  being  revoked  before  it  is 

1  Prior  to  the  Amendment  of  1903  this  was  "ten." 

2  Prior  to  the  Amendment  of  1913,  the  remainder  of  the  subdivision  read  as  fol- 
lows:  and  from  estates  which  have  been  administered  before  them  one  per  centum 
commissions  on  sums  to  be  paid  as  dividends  and  commissions,  or  one  half  of  one  per 
centum  on  the  amount  to  be  paid  to  creditors  upon  the  confirmation  of  a  composition. 


26  CASES    ON   BANKRUPTCY.  [PAET  I. 

concluded,  and  when  the  case  is  specially  referred,  the  judge  shall 
determine  what  part  of  the  fee  and  commissions  shall  be  paid  to  the 
referee. 

SECT.  41.  CONTEMPTS  BEFORE  REFEREES.  —  a.  A  person  shall  not, 
in  proceedings  before  a  referee,  (1)  disobey  or  resist  any  lawful  order, 
process,  or  writ ;  (2)  misbehave  during  a  hearing  or  so  near  the  place 
thereof  as  to  obstruct  the  same;  (3)  neglect  to  produce,  after  hav- 
ing been  ordered  to  do  so,  any  pertinent  document ;  or  (4)  refuse  to 
appear  after  having  been  subpoenaed,  or,  upon  appearing,  refuse  to 
take  the  oath  as  a  witness,  or,  after  having  taken  the  oath,  refuse  to  be 
examined  according  to  law:  Provided,  That  no  person  shall  be 
required  to  attend  as  a  witness  before  a  referee  at  a  place  outside  of 
the  State  of  his  residence,  and  more  than  one  hundred  miles  from  such 
place  of  residence,  and  only  in  case  his  lawful  mileage  and  fee  for  one 
day's  attendance  shall  be  first  paid  or  tendered  to  him. 

6.  The  referee  shall  certify  the  facts  to  the  judge,  if  any  person  shall 
do  any  of  the  things  forbidden  in  this  section.  The  judge  shall  there- 
upon, in  a  summary  manner,  hear  the  evidence  as  to  the  acts  com- 
plained of,  and,  if  it  is  such  as  to  warrant  him  in  so  doing,  punish  such 
person  in  the  same  manner  and  to  the  same  extent  as  for  a  contempt 
committed  before  the  court  of  bankruptcy,  or  commit  such  person  upon 
the  same  conditions  as  if  the  doing  of  the  forbidden  act  had  occurred 
with  reference  to  the  process  of,  or  in  the  presence  of,  the  court. 

SECT.  42.  RECORDS  OF  REFEREES.  —  a.  The  records  of  all  pro- 
ceedings in  each  case  before  a  referee  shall  be  kept  as  nearly  as  may 
be  in  the  same  manner  as  records  are  now  kept  in  equity  cases  in  cir- 
cuit courts  of  the  United  States. 

6.  A  record  of  the  proceedings  in  each  case  shall  be  kept  in  a 
separate  book  or  books,  and  shall,  together  with  the  papers  on  file, 
constitute  the  records  of  the  case. 

c.  The  book  or  books  containing  a  record  of  the  proceedings  shall, 
when  the  case  is  concluded  before  the  referee,  be  certified  to  by  him, 
and,  together  with  such  papers  as  are  on  file  before  him,  be  trans- 
mitted to  the  court  of  bankruptcy  and  shall  there  remain  as  a  part  of 
the  records  of  the  court. 

SECT.  43.  REFEREE'S  ABSENCE  OR  DISABILITY.  —  a.  Whenever  the 
office  of  a  referee  is  vacant,  or  its  occupant  is  absent  or  disqualified  to 
act,  the  judge  may  act,  or  may  appoint  another  referee,  or  another 
referee  holding  an  appointment  under  the  same  court  may,  by  order  of 
the  judge,  temporarily  fill  the  vacancy. 

SECT.  44.  APPOINTMENT  OF  TRUSTEES.  —  a.  The  creditors  of  a 
bankrupt  estate  shall,  at  their  first  meeting  after  the  adjudication  or 
after  a  vacancy  has  occurred  in  the  office  of  trustee,  or  after  an  estate 
has  been  reopened,  or  after  a  composition  has  been  set  aside  or  a  dis- 
charge revoked,  or  if  there  is  a  vacancy  in  the  office  of  trustee,  appoint 
one  trustee  or  three  trustees  of  such  estate.  If  the  creditors  do  not 
appoint  a  trustee  or  trustees  as  herein  provided,  the  court  shall  do  so. 


PART   L]  STATUTES.  27 

SECT.  45.  QUALIFICATIONS  OF  TRUSTEES.  —  a.  Trustees  may  be 
(1 )  individuals  who  are  respectively  competent  to  perform  the  duties  of 
that  office,  and  reside  or  have  an  office  in  the  judicial  district  within 
which  they  are  appointed,  or  (2)  corporations  authorized  by  their 
charters  or  by  law  to  act  in  such  capacity  and  having  an  office  in  the 
judicial  district  within  which  they  are  appointed. 

SECT.  46.  DEATH  OR  REMOVAL  OF  TRUSTEES.  —  a.  The  death  or 
removal  of  a  trustee  shall  not  abate  any  suit  or  proceeding  which  he  is 
prosecuting  or  defending  at  the  time  of  his  death  or  removal,  but  the 
same  may  be  proceeded  with  or  defended  by  his  joint  trustee  or  suc- 
cessor in  the  same  manner  as  though  the  same  had  been  commenced  or 
was  being  defended  by  such  joint  trustee  alone  or  by  such  successor. 

SECT.  47.  DUTIES  OF  TRUSTEES.  — «.  Trustees  shall  respectively 
(1)  account  for  and  pay  over  to  the  estates  under  their  control  all 
interest  received  by  them  upon  property  of  such  estates;  (2)  collect 
and  reduce  to  money  the  property  of  the  estates  for  which  they  are 
trustees,  under  the  direction  of  the  court,  and  close  up  the  estate  as 
espeditiously  as  is  compatible  with  the  best  interests  of  the  parties  in 
interest1 ;  and  such  trustees,  as  to  all  property  in  the  custody  or  com- 
ing into  the  custody  of  the  bankruptcy  court,  shall  be  deemed  vested 
with  all  the  rights,  remedies,  and  powers  of  a  creditor  holding  a  lien  by 
legal  or  equitable  proceedings  thereon  ;  and  also,  as  to  all  property  not 
in  the  custody  of  the  bankruptcy  court,  shall  be  deemed  vested  with  all 
the  rights,  remedies,  and  powers  of  a  judgment  creditor  holding  an  ex- 
ecution duly  returned  unsatisfied;  (3)  deposit  all  money  received  by 
them  in  one  of  the  designated  depositories;  (4)  disburse  money  only  by 
check  or  draft  on  the  depositories  in  which  it  has  been  deposited;  (5)  fur- 
nish such  information  concerning  the  estates  of  which  they  are  the  trus- 
tees and  their  administration  as  may  be  requested  by  parties  in  interest; 
(6)  keep  regular  accounts  showing  all  amounts  received  and  from  what 
sources  and  all  amounts  expended  and  on  what  accounts;  (7)  lay  before 
the  final  meeting  of  the  creditors  detailed  statements  of  the  administra- 
tion of  the  estates;  (8)  make  final  reports  and  file  final  accounts  with  the 
courts  fifteen  days  before  the  days  fixed  for  the  final  meetings  of  the 
creditors  ;  (9)  pay  dividends  within  ten  days  after  they  are  declared  by 
the  referees ;  (10)  report  to  the  courts,  in  writing,  the  condition  of  the 
estates  and  the  amounts  of  money  on  hand,  and  such  other  details  as 
may  be  required  by  the  courts,  within  the  first  month  after  their  ap- 
pointment and  every  two  months  thereafter,  unless  otherwise  ordered 
by  the  courts;  and  (11)  set  apart  the  bankrupt's  exemptions  and  re- 
port the  items  and  estimated  value  thereof  to  the  court  as  soon  as 
practicable  after  their  appointment. 

b.  Whenever  three  trustees  have  been  appointed  for  an  estate,  the 
concurrence  of  at  least  two  of  them  shall  be  necessary  to  the  validity 
of  their  every  act  concerning  the  administration  of  the  estate. 

1  The  words  "after  interest"  in  clause  (2)  were  added  by  the  Amendment  of 
1910. 


28  CASES   ON   BANKRUPTCY.  [PART  I. 

c.  The  trustee  shall,  within  thirty  days  after  the  adjudication,  file  a 
certified  copy  of  the  decree  of  adjudication  in  the  office  where  convey- 
ances of  real  estate  are  recorded  in  every  county  where  the  bankrupt 
owns  real  estate  not  exempt  from  execution,  and  pay  the  fee  for  such 
filing,  and  he  shall  receive  a  compensation  of  fifty  cents  for  each  copy 
so  filed,  which,  together  with  the  filing  fee,  shall  be  paid  out  of  the 
estate  of  the  bankrupt  as  a  part  of  the  cost  and  disbursements  of  the 
proceedings.1 

.SECT.  48.  COMPENSATION  OF  TRUSTEES,  RECEIVERS,  AND  MARSHALS. 
—  a.  Trustees  shall  receive  for  their  services,  payable  after  they 
are  rendered,  a  fee  of  five  dollars  deposited  with  the  clerk  at  the 
time  the  petition  is  filed  in  each  case,  except  when  a  fee  is  not  re- 
quired from  a  voluntary  bankrupt,  and  such  commissions  on  all 
moneys  disbursed  or  turned  over  to  any  person,  including  lien  holders, 
by  them,  as  may  be  allowed  by  the  courts,  not  to  exceed  six  per 
centum  on  the  first  five  hundred  dollars  or  less,  four  per  centum  on 
moneys  in  excess  of  five  hundred  dollars  and  less  than  fifteen  hundred 
dollars,  two  per  centum  on  moneys  in  excess  of  fifteen  hundred 
dollars  and  less  than  ten  thousand  dollars,  and  one  per  centum  on 
moneys  in  excess  of  ten  thousand  dollars.  And  in  case  of  the  confir- 
mation of  a  composition  after  the  trustee  has  qualified  the  court  may 
allow  him,  as  compensation,  not  to  exceed  one  half  of  one  per  centum 
of  the  amount  to  be  paid  the  creditors  on  such  compensation.2 

6.  In  the  event  of  an  estate  being  administered  by  three  trustees 
instead  of  one  trustee  or  by  successive  trustees,  the  court  shall  appor- 
tion the  fees  and  commissions  between  them  according  to  the  services 
actually  rendered,  so  that  there  shall  not  be  paid  to  trustees  for  the 
administering  of  any  estate  a  greater  amount  than  one  trustee  would 
be  entitled  to. 

c.  The  court  may,  in  its  discretion,  withhold  all  compensation  from 
any  trustee  who  has  been  removed  for  cause. 

1  Subdivision  c  was  added  by  the  Amendment  of  1903. 

2  Subdivision  a  Was  so  amended  by  the  Amendment  of  1910.     Originally  the  sub- 
division read :  a.  Trustees  shall  receive,  as  full  compensation  for  their  services,  pay- 
able after  they  are  rendered,  a  fee  of  five  dollars  deposited  with  the  clerk  at  the  time 
the  petition  is  filed  in  each  case,  except  when  a  fee  is  not  required  from  a  voluntary 
bankrupt,  and  from  estates  which  they  have  administered,  such  commissions  on  sums 
to  be  paid  as  dividends  and  commissions  as  may  be  allowed  by  the  courts,  not  to 
exceed  three  per  centum  on  the  first  five  thousand  dollars  or  less,  two  per  centum  on 
the  second  five  thousand  dollars  or  part  thereof,  and  one  per  centum  on  such  sums  in 
excess  of  ten  thousand  dollars. 

It  was  amended  in  1903,  beginning  with  the  words  "  and  such  commissions  "  to  read 
as  follows:  and  such  commissions  on  all  moneys  disbursed  by  them  as  may  be  allowed 
by  the  courts,  not  to  exceed  six  per  centum  on  the  first  five  hundred  dollars  or  less, 
four  per  centum  on  moneys  in  excess  of  five  hundred  dollars  and  less  than  fifteen 
hundred  dollars,  two  per  centum  on  moneys  in  excess  of  fifteen  hundred  dollars  and 
less  than  ten  thousand  dollars,  and  one  per  centum  on  moneys  in  excess  of  ten  thou- 
sand dollars.  And  in  case  of  the  confirmation  of  a  composition  after  the  trustee  has 
qualified  the  court  may  allow  him,  as  compensation,  not  to  exceed  one  half  of  one  per 
centum  of  the  amount  to  be  paid  the  creditors  on  such  composition. 


PART  I.  ]  STATUTES.  29 

d.  Receivers  or  marshals  appointed  pursuant  to  section  two,  sub- 
division three,  of  this  Act  shall  receive  for  their  services,  payable 
after  they  are  rendered,  compensation  by  way  of  commissions  upon  the 
moneys  disbursed  or  turned  over  to  any  person,  including  lien  holders, 
by  them,  and  also  upon  the  moneys  turned  over  by  them  or  afterwards 
realized  by  the  trustees  from  property  turned  over  in  kind  by  them  to 
the  trustees,  as  the  court  may  allow,  not  to  exceed  six  per  centum  on 
the  first  five  hundred  dollars  or  less,  four  per  centum  on  moneys  in 
excess  of  five  hundred  dollars  and  less  than  one  thousand  five  hundred 
dollars,  two  per  centum  on  moneys  in  excess  of  one  thousand  five  hun- 
dred dollars  and  less  than  ten  thousand  dollars,  and  one  per  centum 
on  moneys  in  excess  of  ten  thousand  dollars :  Provided,  That  in  case 
of  the  confirmation  of  a  composition  such  commissions  shall  not  exceed 
one  half  of  one  per  centum  of  the  amount  to  be  paid  creditors  on  such 
compositions :    Provided  further.  That  when  the  receiver  or  marshal 
acts  as  a  mere  custodian  and  does  not  carry  on  the  business  of  the 
bankrupt  as  provided  in  clause  five  of  section  two  of  this  Act,  he  shall 
not  receive  nor  be  allowed  in  any  form  or  guise  more  than  two  per 
centum  on  the  first  thousand  dollars  or  less,  and  one  half  of  one  per 
centum  on  all  above  one  thousand  dollars  on  moneys  disbursed  by  him 
or  turned  over  by  him  to  the  trustee  and  on  moneys  subsequently 
realized  from  property  turned  over  by  him  in  kind  to  the  trustee : 
Provided  further,  That  before  the  allowance  of  compensation  notice  of 
application  therefor,  specifying  the  amount  asked,  shall  be  given  to 
creditors  in  the  manner  indicated  in  section  fifty-eight  of  this  Act.1 

e.  Where  the  business  is  conducted  by  trustees,  marshals,  or  re- 
ceivers, as  provided  in  clause  five  of  section  two  of  this  Act,  the  court 
may  allow  such  officers  additional  compensation  for  such  services  by 
way  of  commissions  upon  the  moneys  disbursed  or  turned  over  to  any 
person,  including  lien  holders,  by  them,  and,  in  cases  of  receivers  or 
marshals,  also  upon  the  moneys  turned  over  by  them  or  afterwards 
realized  by  the  trustees  from  property  turned  over  in  kind  by  them  to 
the  trustees ;   such  commissions  not  to  exceed  six  per  centum  on  the 
first  five  hundred  dollars  or  less,  four  per  centum  on  moneys  in  excess 
of  five  hundred  dollars  and  less  than  one  thousand  five  hundred  dollars, 
two  per  centum  on  moneys  in  excess  of  one  thousand  five  hundred 
dollars  and  less  than  ten  thousand  dollars,  and  one  per  centum  on 
moneys  in  excess  of  ten  thousand  dollars :  Provided,  That  in  case  of  the 
confirmation  of  a  composition  such  commissions  shall  not  exceed  one  half 
of  one  per  centum  of  the  amount  to  be  paid  creditors  on  such  composi- 
tion :    Provided  further,  That  before  the  allowance  of  compensation 
notice  of  application  therefor,  specifying  the  amount  asked,  shall  be  given 
to  creditors  in  the  manner  indicated  in  section  fifty-eight  of  this  Act.1 

SECT.  49.  ACCOUNTS  AND  PAPERS  OF  TRUSTEES.  —  a.  The  accounts 
and  papers  of  trustees  shall  be  open  to  the  inspection  of  officers  and  all 
parties  in  interest. 

1  Subdivisions  d  and  «  were  first  inserted  by  the  Amendment  of  1910. 


30  CASES    ON   BANKRUPTCY.  [PART  I. 

SECT.  50.  BONDS  OF  REFEREES  AND  TRUSTEES.  —  a.  Referees,  be- 
fore assuming  the  duties  of  their  offices,  and  within  such  time  as  the 
district  courts  of  the  United  States  having  jurisdiction  shall  prescribe, 
shall  respectively  qualify  by  entering  into  bond  to  the  United  States  in 
such  sum  as  shall  be  fixed  by  such  courts,  not  to  exceed  five  thousand 
dollars,  with  such  sureties  as  shall  be  approved  by  such  courts,  con- 
ditioned for  the  faithful  performance  of  their  official  duties. 

b.  Trustees,  before  entering  upon  the  performance  of  their  official 
duties,  and  within  ten  days  after  their  appointment,  or  within  such 
further  time,  not  to  exceed  five  days,  as  the  court  may  permit,  shall 
respectively  qualify  by  entering  into  bond  to  the  United  States,  with 
such  sureties  as  shall  be  approved  by  the  courts,  conditioned  for  the 
faithful  performance  of  their  official  duties. 

c.  The  creditors  of  a  bankrupt  estate,  at  their  first  meeting  after  the 
adjudication,  or  after  a  vacancy  has  occurred  in  the  office  of  trustee,  or 
after  an  estate  has  been  reopened,  or  after  a  composition  has  been  set 
aside  or  a  discharge  revoked,  if  there  is  a  vacancy  in  the  office  of  trustee, 
shall  fix  the  amount  of  the  bond  of  the  trustee  ;  they  may  at  any  time 
increase  the  amount  of  the  bond.     If  the  creditors  do  not  fix  the  amount 
of  the  bond  of  the  trustee  as  herein  provided  the  court  shall  do  so. 

d.  The  court  shall  require  evidence  as  to  the  actual  value  of  the 
property  of  sureties. 

e.  There  shall  be  at  least  two  sureties  upon  each  bond. 

/  The  actual  value  of  the  property  of  the  sureties,  over  and  above 
their  liabilities  and  exemptions,  on  each  bond  shall  equal  at  least  the 
amount  of  such  bond. 

g.  Corporations  organized  for  the  purpose  of  becoming  sureties  upon 
bonds,  or  authorized  by  law  to  do  so,  may  be  accepted  as  sureties 
upon  the  bonds  of  referees  and  trustees  whenever  the  courts  are 
satisfied  that  the  rights  of  all  parties  in  interest  will  be  thereby  amply 
protected. 

h.  Bonds  of  referees,  trustees,  and  designated  depositories  shall  be 
filed  of  record  in  the  office  of  the  clerk  of  the  court  and  may  be  sued 
upon  in  the  name  of  the  United  States,  for  the  use  of  any  person  in- 
jured by  a  breach  of  their  conditions. 

i.  Trustees  shall  not  be  liable,  personally  or  on  their  bonds,  to  the 
United  States,  for  any  penalties  or  forfeitures  incurred  by  the  bank- 
rupts under  this  Act,  of  whose  estates  they  are  respectively  trustees. 

j.  Joint  trustees  may  give  joint  or  several  bonds. 

k.  If  any  referee  or  trustee  shall  fail  to  give  bond,  as  herein  provided 
and  within  the  time  limited,  he  shall  be  deemed  to  have  declined  his 
appointment,  and  such  failure  shall  create  a  vacancy  in  his  office. 

I.  Suits  upon  referees'  bonds  shall  not  be  brought  subsequent  to  two 
years  after  the  alleged  breach  of  the  bond. 

tn.  Suits  upon  trustees'  bonds  shall  not  be  brought  subsequent  to 
two  years  after  the  estate  has  been  closed. 

SECT.  51.    DUTIES   OF   CLERKS.  —  a.   Clerks  shall  respectively  (1) 


PART  I.]  STATUTES.  31 

account  for,  as  for  other  fees  received  by  them,  the  clerk's  fee  paid  in 
each  case  and  such  other  fees  as  may  be  received  for  certified  copies  of 
records  which  may  be  prepared  for  persons  other  than'  officers ;  (2) 
collect  the  fees  of  the  clerk,  referee  and  trustee  in  each  case  instituted 
before  filing  the  petition,  except  the  petition  of  a  proposed  voluntary 
bankrupt  which  is  accompanied  by  an  affidavit  stating  that  the  peti- 
tioner is  without,  and  cannot  obtain,  the  money  with  which  to  pay  such 
fees ;  (3)  deliver  to  the  referees  upon  application  all  papers  which  may 
be  referred  to  them,  or,  if  the  offices  of  such  referees  are  not  in  the 
same  cities  or  towns  as  the  offices  of  such  clerks,  transmit  such  papers 
by  mail,  and  in  like  manner  return  papers  which  were  received  from 
such  referees  after  they  have  been  used ;  (4)  and  within  ten  days  after 
each  case  has  been  closed  pay  to  the  referee,  if  the  case  was  referred, 
the  fee  collected  for  him,  and  to  the  trustee  the  fee  collected  for  him 
at  the  time  of  filing  the  petition. 

SECT.  52.  COMPENSATION  OF  CLERKS  AND  MARSHALS.  —  a.  Clerks 
shall  respectively  receive  as  full  compensation  for  their  service  to  each 
estate,  a  filing  fee  of  ten  dollars,  except  when  a  fee  is  not  required  from 
a  voluntary  bankrupt. 

b.  Marshals  shall  respectively  receive  from  the  estate  where  an  ad- 
judication in  bankruptcy  is  made,  except  as  herein  otherwise  provided, 
for  the  performance  of  their  services  in  proceedings  in  bankruptcy, 
the  same  fees,  and  account  for  them  in  the  same  way,  as  they  are 
entitled  to  receive  for  the  performance  of  the  same  or  similar  services 
in  other  cases  in  accordance  with  laws  now  in  force,  or  such  as  may  be 
hereafter  enacted,  fixing  the  compensation  of  marshals. 

SECT.  53.  DUTIES  OF  ATTORNEY- GENERAL.  —  a.  The  Attorney-Gen- 
eral shall  annually  lay  before  Congress  statistical  tables  showing  for 
the  whole  country,  and  by  States,  the  number  of  cases  during  the  year 
of  voluntary  and  involuntary  bankruptcy  ;  the  amount  of  the  property 
of  the  estates ;  the  dividends  paid,  and  the  expenses  of  administer- 
ing such  estates;  and  such  other  like  information  as  he  may  deem 
important. 

SECT.  54.  STATISTICS  OF  BANKRUPTCY  PROCEEDINGS.  —  a.  Officers 
shall  furnish  in  writing  and  transmit  by  mail  such  information  as  is 
within  their  knowledge,  and  as  may  be  shown  by  the  records  and 
papers  in  their  possession,  to  the  Attorney-General,  for  statistical  pur- 
poses, within  ten  days  after  being  requested  by  him  to  do  so. 


CHAPTER  VI. 

CREDITORS. 

SECT.  55.  MEETINGS  OF  CREDITORS.  —  a.  The  court  shall  cause  the 
first  meeting  of  the  creditors  of  a  bankrupt  to  be  held,  not  less  than 
ten  nor  more  than  thirty  days  after  the  adjudication,  at  the  county 
seat  of  the  county  in  which  the* bankrupt  has  had  his  principal  place  of 


32  CASES   ON   BANKRUPTCY.  [PART  I. 

business,  resided,  or  had  his  domicile;  or  if  that  place  would  be  mani- 
festly inconvenient  as  a  place  of  meeting  for  the  parties  in  interest, 
or  if  the  bankrupt  is  one  who  does  not  do  business,  reside,  or  have  his 
domicile  within  the  United  States,  the  court  shall  fix  a  place  for  the 
meeting  which  is  the  most  convenient  for  parties  in  interest.  If  such 
meeting  should  by  any  mischance  not  be  held  within  such  time,  the 
court  shall  fix  the  date,  as  soon  as  may  be  thereafter,  when  it  shall  be 
held. 

b.  At  the  first  meeting  of  creditors  the  judge  or  referee  shall  preside, 
and,  before  proceeding  with  the  other  business,  may  allow  or  disallow 
the  claims  of  creditors  there  presented,  and  may  publicly  examine  the 
bankrupt  or  cause  him  to  be  examined  at  the  instance  of  any  creditor. 

c.  The  creditors  shall  at  each  meeting  take  such  steps  as  may  be 
pertinent  and  necessary  for  the  promotion  of  the  best  interests  of  the 
estate  and  the  enforcement  of  this  Act. 

d.  A  meeting  of  creditors,  subsequent  to  the  first  one,  may  be  held 
at  any  time  and  place  when  all  of  the  creditors  who  have  secured  the 
allowance  of  their  claims  sign  a  written  consent  to  hold  a  meeting  at 
such  time  and  place. 

e.  The  court  shall  call  a  meeting  of  creditors  whenever  one  fourth 
or  more  in  number  of  those  who  have  proven  their  claims  shall  file  a 
written  request  to  that  effect ;  if  such  request  is  signed  by  a  majority 
of  such  creditors,  which  number  represents  a  majority  in  amount  of 
such  claims,  and  contains  a  request  for  such  meeting  to  be  held  at  a 
designated  place,  the  court  shall  call  such  meeting  at  such  place  within 
thirty  days  after  the  date  of  the  filing  of  the  request. 

/.  Whenever  the  affairs  of  the  estate  are  ready  to  be  closed  a  final 
meeting  of  creditors  shall  be  ordered. 

SECT.  56.  VOTERS  AT  MEETING  OF  CREDITORS.  —  a.  Creditors  shall 
pass  upon  matters  submitted  to  them  at  their  meetings  by  a  majority 
vote  in  number  and  amount  of  claims  of  all  creditors  whose  claims  have 
been  allowed  and  are  present,  except  as  herein  otherwise  provided. 

b.  Creditors  holding  claims  which  are  secured  or  have  priority  shall 
not,  in  respect  to  such  claims,  be  entitled  to  vote  at  creditors'  meetings, 
nor  shall  such  claims  be  counted  in  computing  either  the  number  of 
creditors  or  the  amount  of  their  claims,  unless  the  amounts  of  such 
claims  exceed  the  values  of  such  securities  or  priorities,  and  then  only 
for  such  excess. 

SECT.  57.  PROOF  AND  ALLOWANCE  OF  CLAIMS.  —  a.  Proof  of  claims 
shall  consist  of  a  statement  under  oath,  in  writing,  signed  by  a  creditor 
setting  forth  the  claim,  the  consideration  therefor,  and  whether  any, 
and,  if  so  what,  securities  are  held  therefor,  and  whether  any,  and,  if 
so  what,  payments  have  been  made  thereon,  and  that  the  sum  claimed 
is  justly  owing  from  the  bankrupt  to  the  creditor. 

b.  Whenever  a  claim  is  founded  upon  an  instrument  of  writing,  such 
instrument,  unless  lost  or  destroyed,  shall  be  filed  with  the  proof  of 
claim.  If  such  instrument  is  lost  or  destroyed,  a  statement  of  such 


PART  I.]  STATUTES.  33 

fact  and  of  the  circumstances  of  such  loss  or  destruction  shall  be  filed 
under  oath  with  the  claim.  After  the  claim  is  allowed  or  disallowed, 
such  instrument  may  be  withdrawn  by  permission  of  the  court,  upon 
leaving  a  copy  thereof  on  file  with  the  claim. 

c.  Claims  after  being  proved  may,  for  the  purpose  of  allowance,  be 
filed  by  the  claimants  in  the  court  where  the  proceedings  are  pending 
or  before  the  referee  if  the  case  has  been  referred. 

d.  Claims  which  have  been   duly  proved  shall  be  allowed,   upon 
receipt  by  or  upon  presentation  to  the  court,  unless  objection  to  their 
allowance  shall  be  made  by  parties  in  interest,  or  their  consideration 
be  continued  for  cause  by  the  court  upon  its  own  motion. 

e.  Claims  of  secured  creditors  and  those  which  have  priority  may  be 
allowed  to  enable  such  creditors  to  participate  in  the  proceedings  at 
creditors'  meetings  held  prior  to  the  determination  of  the  value  of  their 
securities  or  priorities,  but  shall  be  allowed  for  such  sums  only  as  to 
the  courts  seem  to  be  owing  over  and  above  the  value  of  their  securities 
or  priorities. 

/.  Objections  to  claims  shall  be  heard  and  determined  as  soon  as  the 
convenience  of  the  court  and  the  best  interests  of  the  estates  and  the 
claimants  will  permit. 

g.  The  claims  of  creditors  who  have  received  preferences,  avoidable 
under  section  sixty,  subdivision  b,  or  to  whom  conveyances,  transfers, 
assignments,  or  incumbrances,  void  or  voidable  under  section  sixty- 
seven,  subdivision  e,  have  been  made  or  given,  shall  not  be  allowed 
unless  such  creditors  shall  surrender  such  preferences,  conveyances, 
transfers,  assignments,  or  incumbrances.1 

h.  The  value  of  securities  held  by  secured  creditors  shall  be  deter- 
mined by  converting  the  same  into  money  according  to  the  terms  of 
the  agreement  pursuant  to  which  such  securities  were  delivered  to  such 
creditors  or  by  such  creditors  and  the  trustee,  by  agreement,  arbitration, 
compromise,  or  litigation,  as  the  court  may  direct,  and  the  amount  of 
such  value  shall  be  credited  upon  such  claims,  and  a  dividend  shall  be 
paid  only  on  the  unpaid  balance. 

i.  Whenever  a  creditor,  whose  claim  against  a  bankrupt  estate  is 
secured  by  the  individual  undertaking  of  any  person,  fails  to  prove 
such  claim,  such  person  may  do  so  in  the  creditor's  name,  and  if  he 
discharge  such  undertaking  in  whole  or  in  part  he  shall  be  subrogated 
to  that  extent  to  the  rights  of  the  creditor. 

j.  Debts  owing  to  the  United  States,  a  State,  a  county,  a  district,  or 
a  municipality  as  a  penalty  or  forfeiture  shall  not  be  allowed,  except 
for  the  amount  of  the  pecuniary  loss  sustained  by  the  act,  transaction, 
or  proceeding  out  of  which  the  penalty  or  forfeiture  arose,  with  reason- 
able and  actual  costs  occasioned  thereby,  and  such  interest  as  may 
have  accrued  thereon  according  to  law. 

1  Prior  to  the  Amendment  of  1903,  this  subdivision  read  as  follows:  a.  The  claims 
of  creditors  who  have  received  preferences  shall  not  be  allowed  unless  such  creditors 
shall  surrender  their  preferences. 


34  CASES    ON   BANKRUPTCY.  [PART  I. 

k.  Claims  which  have  beeii  allowed  may  be  reconsidered  for  cause 
and  reallowed  or  rejected  in  whole  or  in  part,  according  to  the  equities 
of  the  case,  before  but  not  after  the  estate  has  been  closed. 

I.  Whenever  a  claim  shall  have  been  reconsidered  and  rejected,  in 
whole  or  in  part,  upon  which  a  dividend  has  been  paid,  the  trustee  may 
recover  from  the  creditor  the  amount  of  the  dividend  received  upon  the 
claim  rejected  in  whole,  or  the  proportional  part  thereof  if  rejected 
only  in  part. 

m.  The  claim  of  any  estate  which  is  being  administered  in  bank- 
ruptcy against  any  like  estate  may  be  proved  by  the  trustee  and  allowed 
by  the  court  in  the  same  manner  and  upon  like  terms  as  the  claims  of 
other  creditors. 

n.  Claims  shall  not  be  proved  against  a  bankrupt  estate  subsequent 
to  one  year  after  the  adjudication ;  or  if  they  are  liquidated  by  litiga- 
tion and  the  final  judgment  therein  is  rendered  within  thirty  days 
before  or  after  the  expiration  of  such  time,  then  within  sixty  days  after 
the  rendition  of  such  judgment:  Provided,  That  the  right  of  infants 
and  insane  persons  without  guardians,  without  notice  of  the  proceedings, 
may  continue  six  months  longer. 

SECT.  58.  NOTICES  TO  CREDITORS.  —  a.  Creditors  shall  have  at 
least  ten  days'  notice  by  mail,  to  their  respective  addresses  as  they  ap- 
pear in  the  list  of  creditors  of  the  bankrupt,  or  as  afterwards  filed  with 
the  papers  in  the  case  by  the  creditors,  unless  they  waive  notice  in  writ- 
ing, of  (1)  all  examinations  of  the  bankrupt;  (2)  all  hearings  upon 
applications  for  the  confirmation  of  compositions  ;  (3)  all  meetings  of 
creditors  ;  (4)  all  proposed  sales  of  property ;  (5)  the  declaration  and 
time  of  payment  of  dividends ;  (6)  the  filing  of  the  final  accounts  of  the 
trustee,  and  the  time  when  and  the  place  where  they  will  be  examined 
and  passed  upon ;  (7)  the  proposed  compromise  of  any  controversy ; 
(8)  the  proposed  dismissal  of  the  proceedings,  and  (9)  there  shall  be 
thirty  days'  notice  of  all  applications  for  the  discharge  of  bank- 
rupts.1 

b.  Notice  to  creditors  of  the  first  meeting  shall  be  published  at  least 
once,  and  may  be  published  such  number  of  additional  times  as  the 
court  may  direct ;  the  last  publication  shall  be  at  least  one  week  prior 
to  the  date  fixed  for  the  meeting.     Other  notices  may  be  published  as 
the  court  shall  direct. 

c.  All  notices  shall  be  given  by  the  referee,  unless  otherwise  ordered 
by  the  judge. 

SECT.  59.  WHO  MAY  FILE  AND  DISMISS  PETITIONS.  —  a.  Any  qual- 
ified person  may  file  a  petition  to  be  adjudged  a  voluntary  bankrupt. 

b.  Three  or  more  creditors  who  have  provable  claims  against  any 
person  which  amount  in  the  aggregate,  in  excess  of  the  value  of  securi- 
ties held  by  them,  if  any,  to  five  hundred  dollars  or  over,  or  if  all  of 
the  creditors  of  such  persons  are  less  than  twelve  in  number,  then  one 

1  Clause  (9)  was  inserted  by  the  Amendment  of  1910.  Prior  to  that  amendment, 
the  additional  words  "  or  the  discharge  of  bankrupts  "  were  at  the  end  of  clause  (2). 


PART  I.]  STATUTES.  35 

of  such  creditors  whose  claim  equals  such  amount  may  file  a  petition  to 
have  him  adjudged  a  bankrupt. 

c.  Petitions  shall  be  filed  in  duplicate,  one  copy  for 'the  clerk  and 
one  for  service  on  the  bankrupt. 

d.  If  it  be  averred  in  the  petition  that  the  creditors  of  the  bankrupt 
are  less  then  twelve  in  number,  and  less  than  three  creditors  have  joined 
as  petitioners  therein,  and  the  answer  avers  the  existence  of  a  larger 
number  of  creditors,  there  shall  be  filed  with  the  answer  a  list  under 
oath  of  all  the  creditors,  with  their  addresses,  and  thereupon  the  court 
shall  cause  all  such  creditors  to  be  notified  of  the  pendency  of  such 
petition  and  shall  delay  the  hearing  upon  such  petition  for  a  reasonable 
time,  to  the  end  that  parties  in  interest  shall  have  an  opportunity  to  be 
heard ;  if  upon  'such  hearing  it  shall  appear  that  a  sufficient  number 
have  joined  in  such  petition,  or  if  prior  to  or  during  such  hearing  a 
sufficient  number  shall  join  therein,  the  case  may  be  proceeded  with, 
but  otherwise  it  shall  be  dismissed. 

e.  In  computing  the  number  of  creditors  of  a  bankrupt  for  the  pur- 
pose of  determining  how  many  creditors  must  join  in  the  petition,  such 
creditors  as  were  employed  by  him  at  the  time  of  the  filing  of  the  peti- 
tion, or  are  related  to  him  by  consanguinity  or  affinity  within  the  third 
degree,  as  determined  by  the  common  law,  and  have  not  joined  in  the 
petition,  shall  not  be  counted. 

/.  Creditors  other  than  original  petitioners  may  at  any  time  enter 
their  appearance  and  join  in  the  petition,  or  file  an  answer  and  be  heard 
in  opposition  to  the  prayer  of  the  petition. 

g.  A  voluntary  or  involuntary  petition  shall  not  be  dismissed  by  the 
petitioner  or  petitioners  or  for  want  of  prosecution  or  by  consent  of 
parties  until  after  notice  to  the  creditors,1  and  to  that  end  the  court 
shall,  before  entertaining  an  application  for  dismissal,  require  the 
bankrupt  to  file  a  list,  under  oath,  of  all  his  creditors,  with  their 
addresses,  and  shall  cause  notice  to  be  sent  to  all  such  creditors  of 
the  pendency  of  such  application,  and  shall  delay  the  hearing  thereon 
for  a  reasonable  time  to  allow  all  creditors  and  parties  in  interest  op- 
portunity to  be  heard. 

SECT.  60.  PREFERRED  CREDITORS.  —  a.  A  person  shall  be  deemed  to 
have  given  a  preference  if,  being  insolvent,  he  has,  within  four  months  be- 
fore the  filing  of  the  petition,  or  after  the  filing  of  the  petition  and  before 
the  adjudication,  procured  or  suffered  a  judgment  to  be  entered  against 
himself  in  favor  of  any  person,  or  made  a  transfer  of  any  of  his  property, 
and  the  effect  of  the  enforcement  of  such  judgment  or  transfer  will  be 
to  enable  any  one  of  his  creditors  to  obtain  a  greater  percentage  of  his 
debt  than  any  other  of  such  creditor's  of  the  same  class.  Where  the 
preference  consists  in  a  transfer,  such  period  of  four  months  shall  not 
expire  until  four  months  after  the  date  of  the  recording  or  registering 
of  the  transfer,  if  by  law  such  recording  or  registering  is  required.* 

1  The  remainder  of  this  subdivision  was  added  by  the  Amendment  of  1910. 

2  Prior  to  the  Amendment  of  1903  this  subdivision  read  as  follows:  a.  A  person 


36  CASES   ON  BANKRUPTCY.  [PART  I. 

b.  If  a  bankrupt  shall  have  procured  or  suffered  a  judgment  to  be 
entered  against  him  in  favor  of  any  person  or  have  made  a  transfer  of 
any  of  his  property,  and  if,  at  the  time  of  the  transfer,  or  of  the  entry 
of  the  judgment,  or  of  the  recording  or  registering  of  the  transfer  if  by 
law  recording  or  registering  thereof  is  required,  and  being  within  four 
months  before  the  filing  of  the  petition  in  bankruptcy  or  after  the 
filing  thereof  and  before  the  adjudication,  the  bankrupt  be  insolvent 
and  the  judgment  or  transfer  then  operate  as  a  preference,  and  the  per- 
son receiving  it  or  to  be  benefited  thereby,  or  his  agent  acting  therein, 
shall  then  have  reasonable  cause  to  believe  that  the  enforcement  of  such 
judgment  or  transfer  would  effect  a  preference,  it  shall  be  voidable  by 
the  trustee  and  he  ma}*  recover  the  property  or  its  value  from  such  per- 
son.   And  for  the  purpose  of  such  recover}7  any  court  of  bankruptcy,  as 
hereinbefore  defined,  and  any  state  court  which  would  have  had  jurisdic- 
tion if  bankruptcy  had  not  intervened,  shall  have  concurrent  jurisdiction.1 

c.  If  a  creditor  has  been   preferred,  and  afterwards  in  good  faith 
gives  the  debtor  further  credit  without  security  of  any  kind  for  property 
which  becomes  a  part  of  the  debtor's  estates,  the  amount  of  such  new 
credit  remaining  unpaid  at  the  time  of  the  adjudication  in  bankruptcy 
may  be  set  off  against  the  amount  which  would  otherwise  be  recover- 
able from  him. 

d.  If  a  debtor  shall  directly  or  indirectly,  in  contemplation  of  the 
filing  of  a  petition  by  or  against  him,  pay  money  or  transfer  property 
to  an  attorney  and  counsellor  at  law,  solicitor  in  equity,  or  proctor  in 
admiralty  for  services  to  be  rendered,  the  transaction  shall  be  re- 
examined  by  the  court  on  petition  of  the  trustee  or  any  creditor  and 
shall  only  be  held  valid  to  the  extent  of  a  reasonable  amount  to  be  de- 
termined by  the  court,  and  the  excess  may  be  recovered  by  the  trustee 
for  the  benefit  of  the  estate. 

shall  be  deemed  to  have  given  a  preference  if,  being  insolvent,  he  has  procured  or 
suffered  a  judgment  to  be  entered  against  himself  in  favor  of  any  person,  or  made,  a 
transfer  of  any  of  his  property,  and  the  effect  of  the  enforcement  of  such  judgment  >»r 
transfer  will  be  to  enable  any  one  of  his  creditors  to  obtain  a  greater  percentage  of  his 
debt  than  any  other  of  such  creditors  of  the  same  class. 

1  This  subdivision  originally  read  as  follows :  6.  If  a  bankrupt  shall  have  given  a 
preference  within  four  months  before  the  filing  of  a  petition,  or  after  the  filing  of  the 
petition  and  before  the  adjudication,  and  the  person  receiving  it,  or  to  be  benefited 
thereby,  or  his  agent  acting  therein,  shall  have  had  reasonable  cause  to  believe  that  it 
was  intended  thereby  to  give  a  preference,  it  shall  be  voidable  by  the  trustee,  and  he 
may  recover  the  property  or  its  value  from  such  person. 

By  the  Amendment  of  1903,  the  words  "within  four  months  before  the  filing  of 
a  petition  or  after  the  filing  of  the  petition  and  before  the  adjudication  "  were  struck 
out,  and  at  the  end  of  the  subdivision  were  added  the  words :  "And,  for  the  purpose  of 
such  recovery,  any  court  of  bankruptcy,  as  hereinbefore  defined,  and  any  State  court 
which  would  have  had  jurisdiction  if  bankruptcy  had  not  intervened,  shall  have  con- 
current jurisdiction."  The  subdivision  was  amended  again  in  1910,  to  the  form  printed 
in  the  text. 


PART  I.]  STATUTES. 


CHAPTER  VII. 

ESTATES. 

SECT.  61.  DEPOSITORIES  FOR  MONEY.  —  a.  Courts  of  bankruptcy 
shall  designate,  by  order,  banking  institutions  as  depositories  for  the 
money  of  bankrupt  estates,  as  convenient  as  may  be  to  the  residences 
of  trustees,  and  shall  require  bonds  to  the  United  States,  subject  to 
their  approval,  to  be  given  by  such  banking  institutions,  and  may 
from  time  to  time  as  occasion  may  require,  by  like  order  increase  the 
number  of  depositories  or  the  amount  of  any  bond  or  change  such 
depositories. 

SECT.  62.  EXPENSES  OF  ADMINISTERING  ESTATES.  —  a.  The  actual 
and  necessary  expenses  incurred  by  officers  in  the  administration  of 
estates  shall,  except  where  other  provisions  are  made  for  their  pay- 
ment, be  reported  in  detail,  under  oath,  and  examined  and  approved 
or  disapproved  by  the  court.  If  approved,  they  shall  be  paid  or  al- 
lowed out  of  the  estates  in  which  they  were  incurred. 

SECT.  63.  DEBTS  WHICH  MAT  BE  PROVED.  —  a.  Debts  of  the  bank- 
rupt may  be  proved  and  allowed  against  his  estate  which  are  (1)  a 
fixed  liability,  as  evidenced  by  a  judgment  or  an  instrument  in  writing, 
absolutely  owing  at  the  time  of  the  filing  of  the  petition  against  him, 
whether  then  payable  or  not,  with  any  interest  thereon  which  would 
have  been  recoverable  at  that  date  or  with  a  rebate  of  interest  upon 
such  as  were  not  then  payable  and  did  not  bear  interest;  (2)  due  as 
costs  taxable  against  an  involuntary  bankrupt  who  was  at  the  time  of 
the  filing  of  the  petition  against  him  plaintiff  in  a  cause  of  action 
which  would  pass  to  the  trustee  and  which  the  trustee  declines  to 
prosecute  after  notice ;  (3)  founded  upon  a  claim  for  taxable  costs 
incurred  in  good  faith  by  a  creditor  before  the  filing  of  the  petition 
in  an  action  to  recover  a  provable  debt ;  (4)  founded  upon  an  open 
account,  or  upon  a  contract  express  or  implied ;  and  (5)  founded  upon 
provable  debts  reduced  to  judgments  after  the  filing  of  the  petition 
and  before  the  consideration  of  the  bankrupt's  application  for  a  dis- 
charge, less  costs  incurred  and  interests  accrued  after  the  filing  of  the 
petition  and  up  to  the  time  of  the  entry  of  such  judgments. 

b.  Unliquidated  claims  against  the  bankrupt  may,  pursuant  to  appli- 
cation to  the  court,  be  liquidated  in  such  manner  as  it  shall  direct,  and 
may  thereafter  be  proved  and  allowed  against  his  estate. 

SECT.  64.  DEBTS  WHICH  HAVE  PRIORITY.  —  a.  The  court  shall  order 
the  trustee  to  pay  all  taxes  legally  due  and  owing  by  the  bankrupt  to 
the  United  States,  State,  county,  district,  or  municipality  in  advance 
of  the  payment  of  dividends  to  creditors,  and  upon  filing  the  receipts 
of  the  proper  public  officers  for  such  payment  he  shall  be  credited  with 
the  amount  thereof,  and  in  case  any  question  arises  as  to  the  amount 
or  legality  of  any  such  tax  the  same  shall  be  heard  and  determined  by 
the  court. 


38  CASES  ON  BANKRUPTCY.  [PART  I. 

6.  The  debts  to  have  priority,  except  as  herein  provided,  and  to  be 
paid  in  full  out  of  bankrupt  estates,  and  the  order  of  payment  shall  be 
(1)  the  actual  and  necessary  cost  of  preserving  the  estate  subsequent 
to  filing  the  petition ;  (2)  the  filing  fees  paid  by  creditors  in  involun- 
tary cases,1  and,  where  property  of  the  bankrupt,  transferred  or  con- 
cealed by  him  either  before  or  after  the  filing  of  the  petition,  shall  have 
been  recovered  for  the  benefit  of  the  estate  of  the  bankrupt  by  the 
efforts  and  at  the  expense  of  one  or  more  creditors,  the  reasonable 
expenses  of  such  recovery;  (3)  the  cost  of  administration,  including 
the  fees  and  mileage  payable  to  witnesses  as  now  or  hereafter  provided 
by  the  laws  of  the  United  States,  and  one  reasonable  attorney's  fee, 
for  the  professional  services  actually  rendered,  irrespective  of  the 
number  of  attorneys  employed,  to  the  petitioning  creditors  in  involun- 
tary cases,  to  the  bankrupt  in  involuntary  cases  while  performing  the 
duties  herein  prescribed,  and  to  the  bankrupt  in  voluntary  cases,  as 
the  court  may  allow;  (4)  wages  due  to  workmen,  clerks,  travelling  or 
city  salesmen2  or  servants  which  have  been  earned  within  three  months 
before  the  date  of  the  commencement  of  proceedings,  not  to  exceed 
three  hundred  dollars  to  each  claimant ;  and  (5)  debts  owing  to  any 
person  who  by  the  laws  of  the  States  or  the  United  States  is  entitled 
to  priority. 

c.  In  the  event  of  the  confirmation  of  a  composition  being  set  aside, 
or  a  discharge  revoked,  the  property  acquired  by  the  bankrupt  in  addi- 
tion to  his  estate  at  the  time  the  composition  was  confirmed  or  the 
adjudication  was  made,  shall  be  applied  to  the  payment  in  full  of  the 
claims  of  creditors  for  property  sold  to  him  on  credit,  in  good  faith, 
while  such  composition  or  discharge  was  in  force,  and  the  residue,  if 
any,  shall  be  applied  to  the  payment  of  the  debts  which  were  owing  at 
the  time  of  the  adjudication. 

SECT.  65.  DECLARATION  AND  PAYMENT  OF  DIVIDENDS.  —  a.  Divi- 
dends of  an  equal  per  centum  shall  be  declared  and  paid  on  all  allowed 
claims,  except  such  as  have  priority  or  are  secured. 

6.  The  first  dividend  shall  be  declared  within  thirty  days  after  the 
adjudication,  if  the  money  of  the  estate  in  excess  of  the  amount  neces- 
sary to  pay  the  debts  which  have  priority  and  such  claims  as  have  not 
been,  but  probably  will  be,  allowed  equals  five  per  centum  or  more  of 
such  allowed  claims.  Dividends  subsequent  to  the  first  shall  be  de- 
clared upon  like  terms  as  the  first  and  as  often  as  the  amount  shah1 
equal  ten  per  centum  or  more  and  upon  closing  the  estate.  Dividends 
may  be  declared  oftener  and  in  smaller  proportions  if  the  judge  shall  so 
order8 :  Provided,  That  the  first  dividend  shall  not  include  more  than  fifty 
per  centum  of  the  money  of  the  estate  in  excess  of  the  amount  necessary 
to  pay  the  debts  which  have  priority  and  such  claims  as  probably  will 

1  The  remainder  of  clause  (2)  was  added  by  the  Amendment  of  1903. 

2  The  words  "  travelling  or  city  salesmen  "  were  inserted  by  the  Amendment  of 
1906. 

3  The  remainder  of  subdivision  b  was  added  by  the  Amendment  of  1903. 


PART  I.]  STATUTES.  39 

be  allowed  :  And  provided  further,  That  the  final  dividend  shall  not  be 
declared  within  three  months  after  the  first  dividend  shall  be  declared. 

c.  The  rights  of  creditors  who  have  received  dividends,  or  in  whose 
favor  final  dividends  have  "been  declared,  shall  not  be  affected  by  the 
proof  and  allowance  of  claims  subsequent  to  the  date  of  such  payment 
or  declarations  of  dividends ;   but  the  creditors  proving  and  securing 
the  allowance  of  such  claims  shall  be  paid  dividends  equal  in  amount 
to  those  already  received  by  the  other  creditors  if  the  estate  equals  so 
much  before  such  other  creditors  are  paid  any  further  dividends. 

d.  Whenever  a  person  shall  have  been  adjudged  a  bankrupt  by  a 
court  without  the  United  States  and  also  by  a  court  of  bankruptcy, 
creditors  residing  within  the  United  States  shall  first  be  paid  a  dividend 
equal  to  that  received  in  the  court  without  the  United  States  by  other 
creditors  before  creditors  who  have  received  a  dividend  in  such  courts 
shall  be  paid  any  amounts. 

e.  A  claimant  shall  not  be  entitled  to  collect  from  a  bankrupt  estate 
any  greater  amount  than  shall  accrue  pursuant  to  the  provisions  of  this 
Act. 

SECT.  66.  UNCLAIMED  DIVIDENDS.  —  a.  Dividends  which  remain  un- 
claimed for  six  months  after  the  final  dividend  has  been  declared  shall 
be  paid  by  the  trustee  into  court. 

6.  Dividends  remaining  unclaimed  for  one  year  shall,  under  the 
direction  of  the  court,  be  distributed  to  the  creditors  whose  claims 
have  been  allowed  but  not  paid  in  full,  and  after  such  claims  have  been 
paid  in  full  the  balance  shall  be  paid  to  the  bankrupt :  Provided,  That 
in  case  unclaimed  dividends  belong  to  minors  such  minors  may  have 
one  year  after  arriving  at  majority  to  claim  such  dividends. 

SECT.  67.  LIENS.  —  a.  Claims  which  for  want  of  record  or  for  other 
reasons  would  not  have  been  valid  liens  as  against  the  claims  of  the 
creditors  of  the  bankrupt  shall  not  be  liens  against  his  estate. 

&.  Whenever  a  creditor  is  prevented  from  enforcing  his  rights  as 
against  a  lien  created,  or  attempted  to  be  created,  by  his  debtor,  who 
afterwards  becomes  a  bankrupt,  the  trustee  of  the  estate  of  such  bank- 
rupt shall  be  subrogated  to  and  may  enforce  such  rights  of  such  cred- 
itor for  the  benefit  of  the  estate. 

c.  A  lien  created  by  or  obtained  in  or  pursuant  to  any  suit  or  pro- 
ceeding at  law  or  in  equity,  including  an  attachment  upon  mesne 
process  or  a  judgment  by  confession,  which  was  begun  against  a  per- 
son within  four  months  before  the  filing  of  a  petition  in  bankruptcy  by 
or  against  such  person  shall  be  dissolved  by  the  adjudication  of  such 
person  to  be  a  bankrupt  if  (1)  it  appears  that  said  lien  was  obtained 
and  permitted  while  the  defendant  was  insolvent  and  that  its  existence 
and  enforcement  will  work  a  preference,  or  (2)  the  party  or  parties  to 
be  benefited  thereby  had  reasonable  cause  to  believe  the  defendant  was 
insolvent  and  in  contemplation  of  bankruptcy,  or  (3)  that  such  lien 
was  sought  and  permitted  in  fraud  of  the  provisions  of  this  Act ;  or  if 
the  dissolution  of  such  lien  would  militate  against  the  best  interests  of 


40  CASES    ON   BANKRUPTCY.  [PART  I. 

the  estate  of  such  person  the  same  shall  not  be  dissolved,  but  the  trus- 
tee of  the  estate  of  such  person,  for  the  benefit  of  the  estate,  shall  be 
subrogated  to  the  rights  of  the  holder  of  such  lien  and  empowered  to 
perfect  and  enforce  the  same  in  his  name  as  trustee  with  like  force  and 
effect  as  such  holder  might  have  done  had  not  bankruptcy  proceedings 
intervened. 

d.  Liens  given  or  accepted  in  good  faith  and  not  in  contemplation 
of  or  in  fraud  upon  this  Act,  and  for  a  present  consideration,  which 
have  been  recorded  according  to  law,  if  record  thereof  was  necessary 
in  order  to  impart  notice,  shall  to  the  extent  of  such  present  considera- 
tion only,1  not  be  affected  by  this  Act. 

e.  That  all  conveyances,  transfers,  assignments,  or  encumbrances  of 
his  property,  or  any  part  thereof,  made  or  given  by  a  person  adjudged 
a  bankrupt  under  the  provisions  of  this  Act  subsequent  to  the  passage 
of  this  Act  and  within  four  months  prior  to  the  filing  of  the  petition, 
with  the  intent  and  purpose  on  his  part  to  hinder,  delay,  or  defraud 
his  creditors,  or  any  of  them,  shall  be  null  and  void  as  against  the 
creditors  of  such  debtor,  except  as  to  purchasers  in~good  faith  and  for 
a  present  fair  consideration ;  and  all  property  of  the  debtor  conveyed, 
transferred,  assigned,  or  encumbered  as  aforesaid  shall,  if  he  be  ad- 
judged a  bankrupt,  and  the  same  is  not  exempt  from  execution  and 
liability  for  debts  by  the  law  of  his  domicile,  be  and  remain  a  part  of 
the  assets  and  estate  of  the  bankrupt  and  shall  pass  to  his  said  trustee, 
whose  duty  it  shall  be  to  recover  and  reclaim  the  same  by  legal  pro- 
ceedings or  otherwise  for  the  benefit  of  the  creditors.     And  all  convey- 
ances, transfers,  or  encumbrances  of  his  property  made  by  a  debtor  at 
any  time  within  four  months  prior  to  the  filing  of  the  petition  against 
him,  and  while  insolvent,  which  are  held  null  and  void  as  against  the 
creditors  of  such  debtor  by  the  laws  of  the  State,  Territory,  or  District 
in  which  such  property  is  situate,  shall  be  deemed  null  and  void  under 
this  Act  against  the  creditors  of  such  debtor  if  he  be  adjudged  a  bank- 
rupt, and  such  property  shall  pass  to  the  assignee  and  be   by  him 
reclaimed  and  recovered  for  the  benefit  of  the  creditors  of  the  bank- 
rupt.2 

For  the  purpose  of  such  recovery  any  court  of  bankruptcy  as  here- 
inbefore defined,  and  any  State  court  which  would  have  had  jurisdiction 
if  bankruptcy  had  not  intervened,  shall  have  concurrent  jurisdiction. 

/.  That  all  levies,  judgments,  attachments,  or  other  liens,  obtained 
through  legal  proceedings  against  a  person  who  is  insolvent,  at  any 
time  within  four  months  prior  to  the  filing  of  a  petition  in  bankruptcy 
against  him,  shall  be  deemed  null  and  void  in  case  he  is  adjudged  a 
bankrupt,  and  the  property  affected  by  the  levy,  judgment,  attachment, 
or  other  lien  shall  be  deemed  wholly  discharged  and  released  from  the 
same,  and  shall  pass  to  the  trustee  as  a  part  of  the  estate  of  the  bank- 

1  The  words  "  to  the  extent  of  such  present  consideration  only  "  were  inserted  by 
the  Amendment  of  1910. 

2  The  remainder  of  subdivision  e  was  added  by  the  Amendment  of  1 903. 


PART  I.]  STATUTES,  41 

rupt,  unless  the  court  shall,  on  due  notice,  order  that  the  right  under 
such  levy,  judgment,  attachment,  or  other  lien  shall  be  preserved  for 
the  benefit  of  the  estate ;  and  thereupon  the  same  may  pass  to  and 
shall  be  preserved  by  the  trustee  for  the  benefit  of  the  estate  as  afore- 
said. And  the  court  may  order  such  conveyance  as  shall  be  necessary 
to  carry  the  purposes  of  this  section  into  effect :  Provided,  That  noth- 
ing herein  contained  shall  have  the  effect  to  destroy  or  impair  the  title 
obtained  by  such  levy,  judgment,  attachment,  or  other  lien,  of  a  bona 
fide  purchaser  for  value  who  shall  have  acquired  the  same  without 
notice  or  reasonable  cause  for  inquiry. 

SECT.  68.  SET-OFFS  AND  COUNTERCLAIMS.  —  a.  In  all  cases  of  mu- 
tual debts  or  mutual  credits  between  the  estate  of  a  bankrupt  and  a 
creditor  the  account  shall  be  stated  and  one  debt  shall  be  set  off  against 
the  other,  and  the  balance  only  shall  be  allowed  or  paid. 

6.  A  set-off  or  counterclaim  shall  not  be  allowed  in  favor  of  any 
debtor  of  the  bankrupt  which  (1)  is  not  provable  against  the  estate; 
or  (2)  was  purchased  by  or  transferred  to  him  after  the  filing  of  the 
petition,  or  within  four  months  before  such  filing,  with  a  view  to  such 
use  and  with  knowledge  or  notice  that  such  bankrupt  was  insolvent, 
or  had  committed  an  act  of  bankruptcy. 

SECT.  69.  POSSESSION  OF  PROPERTY.  —  a.  A  judge  may,  upon  satis- 
factory proof,  by  affidavit,  that  a  bankrupt  against  whom  an  involun- 
tary petition  has  been  filed  and  is  pending  has  committed  an  act  of 
bankruptcy,  or  has  neglected  or  is  neglecting,  or  is  about  to  so  neglect 
his  property  that  it  has  thereby  deteriorated  or  is  thereby  deteriorating 
or  is  about  thereby  to  deteriorate  in  value,  issue  a  warrant  to  the  mar- 
shal to  seize  and  hold  it  subject  to  further  orders.  Before  such  warrant 
is  issued  the  petitioners  applying  therefor  shall  enter  into  a  bond  in 
such  an  amount  as  the  judge  shall  fix,  with  such  sureties  as  he  shall 
approve,  conditioned  to  indemnify  such  bankrupt  for  such  damages  as 
he  shall  sustain  in  the  event  such  seizure  shall  prove  to  have  been 
wrongfully  obtained.  Such  property  shall  be  released,  if  such  bank- 
rupt shall  give  bond  in  a  sum  which  shall  be  fixed  by  the  judge,  with 
such  sureties  as  he  shall  approve,  conditioned  to  turn  over  such  prop- 
erty, or  pay  the  value  thereof  in  money  to  the  trustee,  in  the  event  he 
is  adjudged  a  bankrupt  pursuant  to  such  petition. 

SECT.  70.  TITLE  TO  PROPERTY.  —  a.  The  trustee  of  the  estate  of  a 
bankrupt,  upon  his  appointment  and  qualification,  and  his  successor  or 
successors,  if  he  shall  have  one  or  more,  upon  his  or  their  appointment 
and  qualification,  shall  in  turn  be  vested  by  operation  of  law  with  the 
title  of  the  bankrupt,  as  of  the  date  he  was  adjudged  a  bankrupt,  ex- 
cept in  so  far  as  it  is  to  property  which  is  exempt,  to  all  (1)  documents 
relating  to  his  property ;  (2)  interests  in  patents,  patent  rights,  copy- 
rights, and  trade-marks;  (3)  powers  which  he  might  have  exercised  for 
his  own  benefit,  but  not  those  which  he  might  have  exercised  for  sojne 
other  person  ;  (4)  property  transferred  by  him  in  fraud  of  his  credit- 
ors ;  (5)  property  which  prior  to  the  filing  of  the  petition  he  could  by  any 


42  CASES   ON   BANKRUPTCY.  [PART  I. 

means  have  transferred  or  which  might  have  been  levied  upon  and  sold 
under  judicial  process  against  him :  Provided,  That  when  any  bank- 
rupt shall  have  any  insurance  policy  which  has  a  cash  surrender  value 
payable  to  himself,  his  estate,  or  personal  representatives,  he  may, 
within  thirty  days  after  the  cash  surrender  value  has  been  ascertained 
and  stated  to  the  trustee  by  the  company  issuing  the  same,  pay  or 
secure  to  the  trustee  the  sum  so  ascertained  and  stated,  and  continue 
to  hold,  own,  and  carry  such  policy  free  from  the  claims  of  the  credit- 
ors participating  in  the  distribution  of  his  estate  under  the  bankruptcy 
proceedings,  otherwise  the  policy  shall  pass  to  the  trustee  as  assets ; 
and  (6)  rights  of  action  arising  upon  contracts  or  from  the  unlawful 
taking  or  detention  of,  or  injury  to,  his  property. 

b.  All  real  and  personal  property   belonging  to  bankrupt  estates 
shall  be  appraised  by  three  disinterested  appraisers;   they  shall  be 
appointed  by,  and  report  to,  the  court.    Real  and  personal  property 
shall,  when  practicable,  be  sold  subject  to  the  approval  of  the  court ; 
it  shall  not  be  sold  otherwise  than  subject  to  the  approval  of  the  court 
for  less  than  seventy-five  per  centum  of  its  appraised  value. 

c.  The  title  to  property  of  a  bankrupt  estate  which  has  been  sold,  as 
herein  provided,  shall  be  conveyed  to  the  purchaser  by  the  trustee. 

d.  Whenever  a  composition  shall  be  set  aside,  or  discharge  revoked, 
the  trustee  shall,  upon  his  appointment  and  qualification,  be  vested  as 
herein  provided  with  the  title  to  all  of  the  property  of  the  bankrupt  as 
of  the  date  of  the  final  decree  setting  aside  the  composition  or  revok- 
ing the  discharge. 

e.  The  trustee  may  avoid  any  transfer  by  the  bankrupt  of  his  prop- 
erty which  any  creditor  of  such  bankrupt  might  have  avoided,  and 
may  recover  the  property  so  transferred,  or  its  value,  from  the  person 
to  whom  it  was  transferred,  unless  he  was  a  bona  fide  holder  for  value 
prior  to  the  date  of  the  adjudication.    Such  property  may  be  recovered 
or  its  value  collected  from  whoever  may  have  received  it,  except  a  bona 
fide  holder  for  value.1     For  the  purpose  of  such  recovery  any  court  of 
bankruptcy  as  hereinbefore  defined,  and  any  State  court  which  would 
have  had  jurisdiction,  if  bankruptcy  had  not  intervened,  shall  have  con- 
current jurisdiction. 

/.  Upon  the  confirmation  of  a  composition  offered  by  a  bankrupt, 
the  title  to  his  property  shall  thereupon  revest  in  him. 

SECT.  71.  That  the  clerks  of  the  several  district  courts  of  the  United 
States  shall  prepare  and  keep  in  their  respective  offices  complete  and 
convenient  indexes  of  all  petitions  and  discharges  in  bankruptcy  here- 
tofore or  hereafter  filed  in  the  said  courts,  and  shall,  when  requested 
so  to  do,  issue  certificates  of  search  certifying  as  to  whether  or  not  any 
such  petitions  or  discharges  have  been  filed;  and  said  clerks  shall  be 
entitled  to  receive  for  such  certificates  the  same  fees  as  now  allowed  by 
law  for  certificates  as  to  judgments  in  said  courts:  Provided,  That 
said  bankruptcy  indexes  and  dockets  shall  at  all  times  be  open  to  in- 

1  The  remainder  of  this  subdivision  was  added  by  the  Amendment  of  1903. 


PART  I.]  STATUTES.  43 

spection  and  examination  by  all  persons  or  corporations  without  any 
fee  or  charge  therefor.1 

SECT.  72.  That  neither  the  referee,  receiver,  marshal,  nor  trustee 
shall  in  any  form  or  guise  receive,  nor  shall  the  court  allow  him,  any 
other  or  further  compensation  for  his  services  than  that  expressly 
authorized  and  prescribed  in  this  Act.2 

EFFECT  OF  BANKRUPT  ACT  ON  PROCEEDINGS  UNDER  STATE  LAWS. — 
a.  This  act  shall  go  into  full  force  and  effect  upon  its  passage :  Pro- 
vided, however,  That  no  petition  for  voluntary  bankruptcy  shall  be 
filed  within  one  month  of  the  passage  thereof,  and  no  petition  for  in- 
voluntary bankruptcy  shall  be  filed  within  four  months  of  the  passage 
thereof. 

6.  Proceedings  commenced  under  State  insolvency  laws  before  the 
passage  of  this  Act  shall  not  be  affected  by  it.* 

Approved  July  1,  1898. 

1  This  section  was  added  by  the  Amendment  of  1903. 

2  This  section  was  added  by  the  Amendment  of  1 903,  except  the  words  "  receiver, 
marshal,"  which  were  inserted  by  the  Amendment  of  1910. 

3  The  Amendatory  Acts  of  1903  and  1910  provide  that  they  shall  not  apply  to  cases 
pending  when  the  Acts  took  effect. 


AMENDMENTS  OF  1926  TO  THE 
BANKRUPTCY  ACT 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  section  1  (a),  subdivisions 
6,  8,  and  24  of  an  Act  entitled  "An  Act  to  establish  a  uniform  system  of 
bankruptcy  throughout  the  United  States,"  approved  July  1,  1898,  and 
Acts  amendatory  thereof  and  supplementary  thereto,  be,  and  the  same 
hereby  are,  amended  as  follows : 

"(6)  'Corporations'  shall  mean  all  bodies  having  any  of  the  powers 
and  privileges  of  private  corporations  not  possessed  by  individuals  or 
partnerships  and  shall  include  limited  or  other  partnership  associations 
organized  under  laws  making  the  capital  subscribed  alone  responsible 
for  the  debts  of  the  association,  joint  stock  companies,  unincorporated 
companies  and  associations,  and  any  business  conducted  by  a  trustee 
or  trustees,  wherein  beneficial  interest  or  ownership  is  evidenced  by 
certificate  or  other  written  instrument. 

"(8)  'Courts  of  bankruptcy'  shall  include  the  district  courts  of  the 
United  States  and  of  the  Territories  and  possessions  to  which  this  Act 
is  or  may  hereafter  be  applicable,  the  Supreme  Court  of  the  District  of 
Columbia,  and  the  United  States  Court  of  Alaska. 

"  (24)  States  shall  include  the  Territories  and  possessions  to  which 
this  Act  is,  or  may  hereafter  be,  applicable,  Alaska,  and  the  District  of 
Columbia." 

SEC.  2.  That  the  introductory  provision  preceding  subdivision  1  of 
section  2  of  said  Act,  as  so  amended,  be,  and  the  same  hereby  is,  amended 
to  read  as  follows : 

"That  the  courts  of  bankruptcy  as  hereinbefore  defined,  namely,  the 
district  courts  of  the  United  States  in  the  several  States,  the  Supreme 
Court  of  the  District  of  Columbia,  the  district  courts  of  the  several 
Territories  and  possessions  to  which  this  Act  is,  or  may  hereafter  be, 
applicable,  and  the  United  States  Court  in  the  District  of  Alaska,  are 
hereby  made  courts  of  bankruptcy,  and  are  hereby  invested,  within  their 
respective  territorial  limits  as  now  established,  or  as  they  may  be  here- 
after changed,  with  such  jurisdiction  at  law  and  in  equity  as  will  enable 
them  to  exercise  original  jurisdiction  in  bankruptcy  proceedings,  in 
vacation  in  chambers  and  during  their  respective  terms,  as  they  are  now 
or  may  be  hereafter  held." 

SEC.  3.  That  section  3  (a)  of  said  Act,  as  so  amended,  be,  and  the 
same  hereby  is,  amended  to  read  as  follows : 

"(a)  Acts  of  bankruptcy  by  a  person  shall  consist  of  his  having  (1) 
conveyed,  transferred,  concealed,  or  removed,  or  permitted  to  be  con- 
cealed or  removed,  any  part  of  his  property  with  intent  to  hinder,  de- 
lay, or  defraud  his  creditors,  or  any  of  them;  or  (2)  transferred,  while 
insolvent,  any  portion  of  his  property  to  one  or  more  of  his  creditors 
with  intent  to  prefer  such  creditors  over  his  other  creditors;  or  (3) 


446 

suffered  or  permitted,  while  insolvent,  any  creditor  to  obtain  a  prefer- 
ence through  legal  proceedings,  and  not  having  at  least  five  days  before 
a  sale  or  other  disposition  of  any  property,  affected  by  /such  preference 
vacated  or  discharged  such  preference;  or  (4)  suffered,  or  permitted, 
while  insolvent,  any  creditor  to  obtain  through  legal  proceedings  any 
levy,  attachment,  judgment,  or  other  lien,  and  not  having  vacated  or 
discharged  the  same  within  thirty  days  from  the  date  such  levy,  attach- 
ment, judgment,  or  other  lien  was  obtained ;  or  (5)  made  a  general  assign- 
ment for  the  benefit  of  his  creditors ;  or,  while  insolvent,  a  receiver  or  a 
trustee  has  been  appointed,  or  put  in  charge  of  his  property;  or  (6)  ad- 
mitted in  writing  his  inability  to  pay  his  debts  and  his  willingness  to  be 
adjudged  a  bankrupt  on  that  ground." 

SEC.  4.  That  section  7  (a),  subdivision  (8),  of  said  Act,  as  so  amended, 
be,  and  the  same  hereby  is,  amended  to  read  as  follows: 

"  (8)  Prepare,  make  oath  to,  and  file  in  court  within  ten  days  after 
adjudication,  if  an  involuntary  bankrupt,  and  within  ten  days  after  the 
filing  of  a  petition,  if  a  voluntary  bankrupt  (unless  in  either  case  further 
time  is  granted),  a  schedule  of  his  property  showing  the  amount  and 
kind  of  property,  the  location  thereof,  its  money  value  in  detail,  and  a 
list  of  his  creditors  showing  their  residence,  if  known;  if  unknown,  that 
fact  to  be  stated,  the  amounts  due  each  of  them,  the  consideration 
thereof,  the  security  held  by  them,  if  any,  and  a  claim  for  such  exemp- 
tions, as  he  may  be  entitled  to,  all  in  triplicate,  one  copy  of  each  for  the 
clerk,  one  for  the  referee,  and  one  for  the  trustee." 

SEC.  5.  The  section  12  (a)  of  said  Act,  as  so  amended,  be,  and  the 
same  hereby  is,  amended  to  read  as  follows : 

"  (a)  A  bankrupt  may  offer,  either  before  or  after  adjudication,  terms 
of  composition  to  his  creditors,  after,  but  not  before,  he  has  been  ex- 
amined in  open  court,  or  at  a  meeting  of  his  creditors,  and  has  filed  in 
court  the  schedule  of  his  property  and  the  list  of  his  creditors  required 
to  be  filed  by  bankrupts.  In  compositions  before  adjudication  the  bank- 
rupt shall  file  the  required  schedules,  and  thereupon  the  court  shall  call 
a  meeting  of  creditors  for  the  allowance  of  claims,  examination  of  the 
bankrupt,  and  preservation  or  conduct  of  the  estate,  at  which  meeting 
the  judge  or  referee  shall  preside;  but  action  upon  the  petition  for  ad- 
judication shall  not  be  delayed,  except  that  the  court,  for  good  cause 
shown,  may  in  its  discretion  delay  such  action  upon  such  terms  and 
conditions  for  the  protection  of  and  indemnity  against  loss  by  the  bank- 
rupt estate  as  may  be  proper." 

SEC.  6.  That  section  14  (a)  and  (b)  of  said  Act,  as  so  amended,  be, 
and  the  same  hereby  is,  amended  to  read  as  follows : 

"  (a)  Any  person  may,  after  the  expiration  of  one  month  and  within 
twelve  months,  subsequent  to  being  adjudged  a  bankrupt,  file  an  applica- 
tion for  a  discharge  in  the  court  of  bankruptcy  in  which  the  proceedings 
are  pending,  if  it  shall  be  made  to  appear  to  the  judge  that  the  bankrupt 
was  unavoidably  prevented  from  filing  it  within  such  time,  it  may  be 
filed  within  but  not  after  the  expiration  of  the  next  six  months. 

"  (b)  The  judge  shall  hear  the  application  for  a  discharge  and  such 
proofs  and  pleas  as  may  be  made  in  opposition  thereto  by  the  trustee  or 
other  parties  in  interest,  at  such  time  as  will  give  the  trustee  or  parties 
in  interest  a  reasonable  opportunity  to  be  fully  heard;  and  investigate 


44c 

the  merits  of  the  application  and  discharge  the  applicant,  unless  he  has 
(1)  committed  an  offense  punishable  by  imprisonment  as  herein  provided; 
or  (2)  destroyed,  mutilated,  falsified,  concealed,  or  failed  to  keep  books 
of  account,  or  records,  from  which  his  financial  condition  and  business 
transactions  might  be  ascertained ;  unless  the  court  deem  such  failure  or 
acts  to  have  been  justified,  under  all  the  circumstances  of  the  case;  or 
(3)  obtained  money  or  property  on  credit,  or  obtained  an  extension  or  re- 
newal of  credit,  by  making  or  publishing,  or  causing  to  be  made  or 
published,  in  any  manner  whatsoever,  a  materially  false  statement  in 
writing  respecting  his  financial  condition;  or  (4)  at  any  time  subsequent 
to  the  first  day  of  the  twelve  months  immediately  preceding  the  filing 
of  the  petition,  transferred,  removed,  destroyed,  or  concealed  or  per- 
mitted to  be  removed,  destroyed,  or  concealed  any  of  his  property,  with 
intent  to  hinder,  delay,  or  defraud  his  creditors;  or  (5)  has  been  granted 
a  discharge  in  bankruptcy  within  six  years ;  or  (6)  in  the  course  of  pro- 
ceedings in  bankruptcy,  refused  to  obey  any  lawful  order  of  or  to  answer 
any  material  question  approved  by  the  court;  or  (7)  has  failed  to  explain 
satisfactorily  any  losses  of  assets  or  deficiency  of  assets  to  meet  his  lia- 
bilities: Provided,  That  if,  upon  the  hearing  of  an  objection  to  a  dis- 
charge, the  objector  shall  show  to  the  satisfaction  of  the  court  that  there 
are  reasonable  grounds  for  believing  that  the  bankrupt  has  committed 
any  of  the  acts  which,  under  this  paragraph  (b),  would  prevent  his  dis- 
charge in  bankruptcy,  then  the  burden  of  proving  that  he  has  not  com- 
mitted any  of  such  acts  shall  be  upon  the  bankrupt :  And  provided  further, 
That  the  trustee  shall  not  interpose  objections  to  a  bankrupt's  discharge 
until  he  shall  be  authorized  so  to  do  by  the  creditors  at  a  meeting  of 
creditors  called  for  that  purpose  on  the  application  of  any  creditor." 

SEC.  7.  That  section  21  of  said  Act,  as  so  amended,  be,  and  the  same 
hereby  is,  amended  by  adding  after  paragraph  (g)  thereof  a  new  para- 
graph (h),  to  read  as  follows: 

"  (h)  A  communication  by  a  creditor,  receiver,  or  trustee  of  one  by 
or  against  whom  a  bankruptcy  petition  is  filed,  or  who  has  been  adju- 
dicated a  bankrupt,  to  another  creditor,  uttered  in  good  faith  and  with 
reasonable  grounds  for  belief  in  its  truth,  concerning  the  conduct,  acts, 
or  property  of  such  bankrupt,  shall  be  privileged,  and  the  creditor  re- 
ceiver, or  trustee  so  uttering  the  same  shall  not  be  held  liable  therefor." 

SEC.  8.  That  section  23  of  said  Act,  as  so  amended,  be,  and  the  same 
hereby  is,  amended  to  read  as  follows : 

"  (a)  The  United  States  district  courts  shall  have  jurisdiction  of  all 
controversies  at  law  and  in  equity,  as  distinguished  from  proceedings 
in  bankruptcy,  between  trustees  as  such  and  adverse  claimants  concern- 
ing the  property  acquired  or  claimed  by  the  trustees,  in  the  same  man- 
ner and  to  the  same  extent  only  as  though  bankruptcy  proceedings  had 
not  been  instituted  and  such  controversies  had  been  between  the  bank- 
rupts and  such  adverse  claimants. 

"  (b)  Suits  by  the  trustee  shall  be  brought  or  prosecuted  only  in  the 
courts  where  the  bankrupt,  whose  estate  is  being  administered  by  such 
trustee,  might  have  brought  or  prosecuted  them  if  proceedings  in  bank- 
ruptcy had  not  been  instituted,  unless  by  consent  of  the  proposed  de- 
fendant, except  suits  for  the  recovery  of  property  under  section  60,  sub- 
division b;  section  67,  subdivision  e;  and  section  70,  subdivision  e." 


SEC.  9.  That  section  24  (a)  and  (b)  of  said  Act,  as  so  amended,  be, 
and  the  same  hereby  is,  amended  to  read  as  follows,  and  by  adding  at  the 
end  thereof,  a  new  subdivision  (c) ,  to  read  as  follows : 

"  (a)  The  Supreme  Court  of  the  United  States,  the  circuit  courts  of 
appeal  of  the  United  States,  the  Court  of  Appeals  of  the  District  of 
Columbia,  and  the  supreme  courts  of  the  Territories,  in  vacation,  in 
chambers  and  during  their  respective  terms,  as  now  or  as  they  may  be 
hereafter  held,  are  hereby  invested  with  appellate  jurisdiction  of  con- 
tro  versies  arising  in  bankruptcy  proceedings  from  the  courts  of  bank- 
ruptcy from  which  they  have  appellate  jurisdiction  in  other  cases. 

"  (b)  The  several  circuit  courts  of  appeal  and  the  Court  of  Appeals  of 
the  District  of  Columbia  shall  have  jurisdiction  in  equity,  either  inter- 
locutory or  final,  to  superintend  and  revise  in  matter  of  law  (and  in  mat- 
ter of  law  and  fact  the  matters  specified  in  section  25)  the  proceedings  of 
the  several  inferior  courts  of  bankruptcy  within  their  jurisdiction.  Such 
power  shall  be  exercised  by  appeal  and  in  the  form  and  manner  of  an 
appeal,  except  in  the  cases  mentioned  in  said  section  25  to  be  allowed  in 
the  discretion  of  the  appellate  court. 

"  (c)  All  appeals  under  this  section  shall  be  taken  within  thirty  days 
after  the  judgment,  or  order,  or  other  matter  complained  of,  has  been 
rendered  or  entered." 

SEC.  10.  That  section  25  (a)  of  said  Act,  as  so  amended,  be,  and  the 
same  is,  amended  to  read  as  follows: 

"  (a)  That  appeals,  as  in  equity  cases,  may  be  taken  in  bankruptcy 
proceedings  from  the  courts  of  bankruptcy  to  the  circuit  courts  of  ap- 
peal of  the  United  States  and  the  Court  of  Appeals  of  the  District  of 
Columbia  and  to  the  supreme  courts  of  the  Territories  in  the  following 
cases,  to  wit:  (1)  From  a  judgment  adjudging  or  refusing  to  adjudge  the 
defendant  a  bankrupt;  (2)  from  a  judgment  granting  or  denying  a  dis- 
charge; and  (3)  from  a  judgment  allowing  or  rejecting  a  debt  or  claim 
of  $500  or  over.  Such  appeal  shall  be  taken  within  thirty  days  after  the 
judgment  appealed  from  has  been  rendered,  and  may  be  Jieard  and  de- 
termined by  the  appellate  court  in  term  or  vacation,  as  the  case  may  be." 

SEC.  11.  That  section  29  (a),  (b),  and  (d)  of  said  Act,  as  so  amended, 
be,  and  the  same  hereby  is,  amended  to  read  as  follows,  and  that  section 
29  be  further  amended  by  adding  after  paragraph  (d)  thereof  a  new 
paragraph  (e)  to  read  as  follows: 

"  (a)  A  person  shall  be  punished  by  imprisonment  for  a  period  of  not 
to  exceed  five  years  upon  conviction  of  the  offense  of  having  knowingly 
and  fraudulently  appropriated  to  his  own  use,  embezzled,  spent,  or  un- 
lawfully transferred  any  property  or  secreted  or  destroyed  any  document 
belonging  to  a  bankrupt  estate  which  came  into  his  charge  as  trustee, 
receiver,  custodian,  or  other  officer  of  the  court. 

"  (b)  A  person  shall  be  punished  by  imprisonment  for  a  period  of  not 
to  exceed  five  years  upon  conviction  of  the  offense  of  having  knowingly 
and  fraudulently  (1)  concealed  from  the  receiver,  trustee,  United  States 
marshal,  or  other  officer  of  the  court  charged  with  the  control  or  custody 
of  property,  or  from  creditors  in  composition  cases,  any  property  belong- 
ing to  the  estate  of  a  bankrupt;  or  (2)  made  a  false  oath  or  account  in, 
or  in  relation  to  any  proceeding  in  bankruptcy;  or  (3)  presented  under 
oath  any  false  claim  for  proof  against  the  estate  of  a  bankrupt,  or  used 


any  such  claim  in  composition,  personally,  or  by  agent,  proxy,  or  at- 
torney, or  as  agent,  proxy,  or  attorney;  or  (4)  received  any  material 
amount  of  property  from  a  bankrupt  after  the  filing  of  the  petition  with 
intent  to  defeat  this  Act;  or  (5)  received  or  attempted  to  obtain  any 
money  or  property,  remuneration,  compensation,  reward,  advantage,  or 
promise  thereof  from  any  person,  for  acting  or  forbearing  to  act  in  bank- 
ruptcy proceedings ;  or  (6)  having  been  an  officer  or  agent  of  any  person 
or  corporation,  and  in  contemplation  of  the  bankruptcy  of  such  person 
or  corporation,  or  with  intent  to  defeat  the  operation  of  this  Act,  con- 
cealed or  transferred  any  of  the  property  of  the  debtor;  or  (7)  after  the 
filing  of  the  petition,  or,  in  contemplation  of  bankruptcy,  concealed,  de- 
stroyed, mutilated,  or  falsified  any  book,  document,  or  record  affecting 
or  relating  to  the  property  or  affairs  of  a  bankrupt :  or  (8)  after  the  filing 
of  the  petition,  withheld  from  the  receiver  or  trustee  any  book,  docu- 
ment, or  paper  affecting  or  relating  to  the  property  or  affairs  of  a  bank- 
rupt, to  the  possession  of  which  he  is  entitled. 

"  (d)  A  person  shall  not  be  prosecuted  for  any  offense  arising  under 
this  Act  unless  the  indictment  is  found  or  the  information  is  filed  in 
court  within  three  years  after  the  commission  of  the  offense. 

"  (e)  (1)  Whenever  any  referee,  receiver,  or  trustee  shall  have  grounds 
for  believing  that  any  offense  under  this  Act  has  been  committed,  or 
from  facts  or  circumstances  brought  out  in  the  course  of  administration 
or  otherwise  brought  to  his  attention,  that  there  is  reasonable  ground  to 
believe  that  such  an  offense  has  been  committed,  or  for  special  reason, 
an  investigation  should  be  had  in  connection  therewith,  it  shall  be  the 
duty  of  such  referee,  receiver,  or  trustee  to  report  such  matter  to  the 
United  States  attorney  for  the  district  in  which  it  is  believed  such  an 
offense  has  been  committed,  including  in  such  report  a  statement  of  all 
the  facts  and  circumstances  of  the  case  within  his  knowledge,  with  the 
names  of  the  witnesses,  and  a  statement  as  to  the  offense  or  offenses 
believed  to  have  been  committed. 

"(2)  It  shall  be  the  duty  of  every  United  States  attorney  imme- 
diately to  inquire  into  the  fact  so  reported  to  him  by  any  referee,  receiver, 
or  trustee,  and  the  law  applicable  thereto,  and  if  it  appears  probable 
that  any  offense  under  this  Act  has  been  committed,  in  a  proper  case 
and  without  delay,  to  present  the  matter  to  the  grand  jury,  unless  upon 
inquiry  and  examination  such  district  attorney  decides  that  the  ends  of 
public  justice  do  not  require  that  the  alleged  offense  should  be  investi- 
gated or  prosecuted,  in  which  case  he  shall  report  the  facts  to  the  At- 
torney General  for  his  direction  in  the  premises." 

SEC.  12.  That  section  38  (a),  subdivision  5,  of  said  Act,  as  so  amended, 
be,  and  the  same  hereby  is,  amended  to  read  as  follows : 

"  (5)  During  the  examination  of  the  bankrupt,  or  other  proceedings, 
authorize  the  employment  of  stenographers  for  reporting  and  transcrib- 
ing the  proceedings  at  such  reasonable  expense  to  the  estate  as  the  court 
may  fix." 

SEC.  13.  That  section  57  (n),  of  said  Act,  as  so  amended,  be,  and  the 
same  hereby  is,  amended  to  read  as  follows :  . 

"(n)  Claims  shall  not  be  proved  against  a  bankrupt  estate  subse- 
quent to  six  months  after  the  adjudication;  or  if  they  are  liquidated 
by  litigation  and  the  final  judgment  therein  is  rendered  within  thirty 


44/ 

days  before  or  after  the  expiration  of  such  time,  then  within  sixty  days 
after  the  rendition  of  such  judgment :  Provided,  That  the  right  of  infants 
and  insane  persons  without  guardians,  without  notice  of  the  proceedings, 
may  continue  six  months  longer." 

SEC.  14.  That  section  60  (a),  of  said  Act  as  so  amended,  be,  and  the 
same  hereby  is,  amended  to  read  as  follows : 

"  (a)  A  person  shall  be  deemed  to  have  given  a  preference  if,  being 
insolvent,  he  has,  within  four  months  before  the  filing  of  the  petition, 
or  after  the  filing  of  the  petition  and  before  the  adjudication,  procured 
or  suffered  a  judgment  to  be  entered  against  himself  in  favor  of  any  per- 
son, or  made  a  transfer  to  any  of  his  property,  and  the  effect  of  the  en- 
forcement of  such  judgment  or  transfer  will  be  to  enable  any  one  of  his 
creditors  to  obtain  a  greater  percentage  of  his  debt  than  any  other  of 
such  creditors  of  the  same  class.  Where  the  preference  consists  in  a  trans- 
fer, such  period  of  four  months  shall  not  expire  until  four  months  after 
the  date  of  recording  or  registering  of  the  transfer,  if  by  law  such  record- 
ing or  registering  is  required  or  permitted." 

SEC.  15.  That  section  64,  subdivisions  (a)  and  (b),  of  said  Act,  as  so 
amended,  be,  and  the  same  hereby  are,  amended  to  read  as  follows: 

"(a)  The  court  shall  order  the  trustee  to  pay  all  taxes  legally  due 
and  owing  by  the  bankrupt  to  the  United  States,  State,  county,  district, 
or  municipality,  in  the  order  of  priority  as  set  forth  in  paragraph  (b) 
hereof :  Provided,  That  no  order  shall  be  made  for  the  payment  of  a  tax 
assessed  against  real  estate  of  a  bankrupt  in  excess  of  the  value  of  the 
interest  of  the  bankrupt  estate  therein  as  determined  by  the  court. 
Upon  filing  the  receipts  of  the  proper  public  officers  for  such  payments  the 
trustee  shall  be  credited  with  the  amounts  thereof,  and  in  case  any  ques- 
tion arises  as  to  the  amount  or  legality  of  any  such  tax  the  same  shall  be 
heard  and  determined  by  the  court. 

"  (b)  The  debts  to  have  priority,  in  advance  of  the  payment  of  divi- 
dends to  creditors,  and  to  be  paid  in  full  out  of  bankrupt  estates,  and  the 
order  of  payment  shall  be  (1)  the  actual  and  necessary  cost  of  preserving 
the  estate  subsequent  to  filing  the  petition;  (2)  the  filing  fees  paid  by 
creditors  in  involuntary  cases,  and,  where  property  of  the  bankrupt, 
transferred  or  concealed  by  him  either  before  or  after  the  filing  of  the 
petition,  shall  have  been  recovered  for  the  benefit  of  the  estate  of  the 
bankrupt  by  the  efforts  and  at  the  expense  of  one  or  more  creditors,  the 
reasonable  expense  of  such  recovery;  (3)  the  cost  of  administration, 
including  the  fees  and  mileage  payable  to  witnesses  as  now  or  hereafter 
provided  by  the  laws  of  the  United  States,  and  one  reasonable  attor- 
ney's fee,  for  the  professional  services  actually  rendered,  irrespective  of 
the  number  of  attorneys  employed,  to  the  petitioning  creditors  in  in- 
voluntary cases  while  peforming  the  duties  herein  prescribed,  and  to  the 
bankrupt  in  voluntary  and  involuntary  cases,  as  the  court  may  allow; 
(4)  where  the  confirmation  of  composition  terms  has  been  refused  or  set 
aside  upon  the  objection  and  through  the  efforts  and  at  the  expense  of 
one  or  more  creditors,  in  the  discretion  of  the  court,  the  reasonable  ex- 
penses of  such  creditors  in  opposing  such  composition;  (5)  wages  due 
to  workmen,  clerks,  traveling  or  city  salesmen,  or  servants,  which  have 
been  earned  within  three  months  before  the  date  of  the  commencement 
of  the  proceeding,  not  to  exceed  $600  to  each  claimant;  (6)  taxes  pay- 


440 

able  under  paragraph  (a)  hereof  and  (7)  debts  owing  to  any  person  who 
by  the  laws  of  the  States  or  the  United  States  is  entitled  to  priority: 
Provided,  That  the  term  'person'  as  used  in  this  section  shall  include 
corporations,  the  United  States  and  several  States  and  Territories  of 
the  United  States." 

SEC.  16.  That  section  70,  subdivision  (a)  2,  of  said  Act  as  so  amended, 
be,  and  the  same  hereby  is,  amended  to  read  as  follows : 

"  (2)  Interest  in  patents,  patent  rights,  copyrights,  and  trade-marks, 
and  in  applications  for  patents,  copyrights,  and  trade-marks :  Provided, 
That  in  case  the  trustee,  within  thirty  days  after  appointment,  does  not 
notify  the  applicant  for  a  patent,  copyright,  or  trade-mark  of  his  elec- 
tion to  prosecute  the  application  to  allowance  or  rejection,  the  bankrupt 
may  apply  to  the  court  for  an  order  revesting  him  with  the  title  thereto, 
which  petition  shall  be  granted,  unless,  for  cause  shown  by  the  trustee, 
the  court  grants  further  time  to  the  trustee  for  making  such  selection; 
and  such  applicant  may,  in  any  event,  at  any  time  petition  the  court  to 
be  revested  with  such  title  in  case  the  trustee  shall  fail  to  prosecute  such 
application  with  reasonable  diligence;  and  the  court,  upon  revesting  the 
bankrupt  with  such  title,  shall  direct  the  trustee  to  execute  proper  in- 
struments of  transfer  to  make  the  same  effective  in  law  and  upon  the 
records." 

SEC.  17.  Nothing  herein  contained  shall  have  the  effect  to  release  or 
extinguish  any  penalty,  forfeiture,  or  liability  incurred  under  any  Act 
or  Acts  of  which  this  Act  is  amendatory. 

SEC.  18.  The  provisions  of  this  amendatory  Act  shall  govern  pro- 
ceedings, so  far  as  practicable  and  applicable,  in  bankruptcy  cases  pend- 
ing when  it  takes  effect;  but  as  to  proceedings  in  cases  pending  when 
this  Act  takes  effect,  to  which  the  provisions  of  this  amendatory  Act  are 
not  applicable,  such  proceedings  shall  be  disposed  of  conformably  to  the 
provisions  of  said  Act  approved  July  1,  1898,  and  the  Acts  amendatory 
thereof  and  supplementary  thereto. 

SEC.  19.  All  Acts  or  parts  of  Acts  inconsistent  with  any  provisions  of 
this  Act  are  hereby  repealed. 

SEC.  20.  This  Act  shall  take  effect  and  be  in  force  on  and  after  three 
months  from  the  date  of  its  approval. 

Approved,  May  27,  1926. 


PART    II. 

CASES. 

CHAPTEE   I. 

RESPECTIVE    JURISDICTIONS   OF   THE   UNITED   STATES  AND 
THE   SEVERAL  STATES. 


SECTION   I. 

EXTENT  OP  THE  POWERS  OF  THE  UNITED  STATES. 

CONSTITUTION  OF  THE   UNITED   STATES. 
ARTICLE  I.,  SECTION  8. 

THE    Congress    shall    have    Power  ...  to   establish  .  .  .  uniform 
Laws  on  the  subject  of  Bankruptcies  throughout  the  United  States. 


LEIDIGH  CARRIAGE   CO.  v.  STENGEL.1 
CIRCUIT  COURT  OF  APPEALS  FOR  THE  SIXTH  CIRCUIT,  MAY  2,  1899. 

[Reported  in  95  Federal  Reporter,  637.] 

BEFORE  TAFT  and  LURTON,  Circuit  Judges,  and  CLARK,  District 
Judge. 

TAFT,  Circuit  Judge.  The  last  assignment  of  error  is  based  on  the 
claim  that  the  federal  act  is  unconstitutional.  The  ground  for  this 
contention  is  that  the  act  is  not  uniform,  in  that  a  distinction  is  made 
between  natural  persons  and  artificial,  and  further,  that  the  distinction 
is  made  between  classes  of  artificial  persons.  All  natural  persons  can 
be  adjudged  voluntary  or  involuntary  bankrupts ;  whereas,  artificial 
persons,  of  the  character  of  the  Leidigh  Carriage  Company,  cannot  be 
adjudged  voluntary  bankrupts,  but  can  be  adjudged  involuntary  bank- 
rupts, and  other  corporations  cannot  be  adjudged  either  voluntary  or 

1  Only  BO  ranch  of  the  opinion  is  printed  as  relates  to  the  constitutionality  of  the 
Bankrupt  Act. 


46  LEIDIGH   CARRIAGE   CO.    V.   STENGEL.  [CHAP.  L 

involuntary  bankrupts.  In  our  judgment,  the  power  given  to  Congress 
in  section  8  of  article  1,  "to  establish  uniform  laws  on  the  subject  of 
bankruptcies  throughout  the  United  States,"  imposes  no  limitation 
upon  Congress  as  to  the  classification  of  persons  who  are  to  be  affected 
by  such  laws,  provided  only  the  laws  shall  have  uniform  operation 
throughout  the  United  States.  The  object  which  the  framers  of  the 
Constitution  had  was  to  enable  Congress  to  prevent  the  enforce- 
ment of  as  many  different  bankrupt  laws  as  there  were  States.  The 
meaning  of  the  language  of  the  Constitution  is  not  changed  by 
arranging  the  words  in  a  slightly  different  order,  so  that  it  shall 
read,  "  to  establish  laws  on  the  subject  of  bankruptcies  uniform 
throughout  the  United  States."  The  emphasis  in  the  phrase  is  on 
the  words  "uniform"  and  "  throughout,"  and  their  correlation  leaves 
no  doubt  that  the  uniformity  required  is  geographical,  and  not  per- 
sonal, in  the  sense  of  being  alike  applicable  to  all  members  of  the 
communit}'. 

The  histor}'  of  the  bankrupt  laws  in  England  shows  that  a  bankrupt 
law,  when  our  Constitution  was  adopted,  which  applied  to  all  members 
of  the  community  alike,  would  have  been  a  great  anomaly.  The  first 
bankrupt  act  passed  in  England  was  St.  34  &  35  Hen.  VIII.  c.  4, 
"  against  such  as  do  make  bankrupt."  The  provisions  of  this  act  were 
extended  and  expanded  by  Act  13  Eliz.  c.  7 ;  by  Act  21  Jac.  I.  c.  19  ; 
by  Act  7  Geo.  I.  c.  31  ;  by  Act  5  Geo.  II.  c.  30;  by  Act  46  Geo.  III. 
c.  135 ;  by  Act  6  Geo.  IV.  c.  16  ;  and  by  Act  1  &  2  Wm.  IV.  c.  56. 
From  the  days  of  Henry  VIII.  to  the  daj-s  of  Victoria  the  English 
bankruptcy  acts  applied  onhy  to  traders,  and  it  was  not  until  the  act 
of  1861  that  the  bankruptcy  extended  to  nontraders.  The  United 
States  bankrupt  law  of  1800,  the  first  bankrupt  law  passed  after  the 
Constitution  was  adopted,  was  an  involuntary  law,  and  applied  only  to 
traders,  bankers,  brokers,  and  underwriters.  2  Stat.  19,  §  1. 

The  question  of  the  classes  of  persons  to  be  affected  by  the  bankrupt 
law  is  one  largety,  if  not  wholly,  within  the  discretion  of  Congress. 
Chief  Justice  Marshall  said  in  Sturgis  v.  Crowninshield,  4  Wheat.  122, 
194  :  "  The  bankrupt  law  is  said  to  grow  out  of  the  exigencies  of  com- 
merce, and  to  be  applicable  solely  to  traders  ;  but  it  is  not  easy  to  sa}* 
who  must  be  excluded  from,  or  may  be  included  in,  this  description.  It 
is,  like  every  other  part  of  the  subject,  one  on  which  the  legislature 
ma.y  exercise  an  extensive  discretion."  Certainly  it  cannot  be  said 
that,  in  enacting  the  present  law,  Congress  has  passed  the  limits  of 
such  discretion.  The  proper  purposes  of  a  bankruptc}7  act  like  the 
present  are:  First  (and  this  was  its  original  purpose),  to  enable 
creditors  to  protect  themselves  b\*  summan*  process  against  the  frauds 
of  their  debtors  in  evading  the  payment  of  debts  ;  second,  to  distribute 
the  assets  of  the  debtor  equally  among  his  creditors  ;  and,  third,  to 
relieve  debtors  from  the  burden  of  debts,  which,  through  business  mis- 
fortunes and  otherwise,  they  have  incurred,  and  which  they  are  unable 
to  pay.  In  England,  until  1849,  there  was  no  provision  by  which 


SECT.  I.]  LEIDIGH   CARRIAGE    CO.    V.    STENGEL.  47 

petitions  in  voluntary  bankruptcy  could  be  filed,  though  there  had  pre- 
viously been  acts  for  the  relief  of  insolvent  debtors  from  an  early 
period  ;  and  Parliament  had,  as  Mr.  Justice  Vaughn  Williams  points 
out  in  Re  Painter  [1895]  1  Q.  B.  85,  recognized  that  the  State  has  an 
interest  in  the  debtor  being  relieved  from  his  liability,  so  that  he  shall 
not  be  weighed  down  by  the  burden  of  indebtedness  from  discharging 
the  duties  of  a  citizen  and  ma}"  employ  himself  in  honest  industry. 
The  reason  why  bankruptcy  legislation  was  limited  to  traders  for  so 
man}-  centuries  was  because  it  was  considered  that  traders  were  the 
class  having  the  greatest  opportunity,  and  therefore  most  likely,  to 
commit  the  frauds  which  bankruptcy  acts  were  passed  to  prevent. 

It  seems  to  us  that  the  classification  which  Congress  has  imposed  is 
entirely  reasonable,  having  regard  to  the  proper  objects  for  which  such 
a  law  may  be  passed.  By  the  present  act,  an}'  person  who  owes  debts, 
except  a  corporation,  is  entitled  to  the  benefits  of  the  act  as  a  voluntary 
bankrupt.  The  exception  finds  a  proper  basis  in  the  fact  that  it  is  of 
no  particular  good  to  the  State  or  the  public  to  relieve  an  artificial 
entity  from  a  burden  of  indebtedness  after  it  has  failed  in  the  purpose 
for  which  it  was  organized.  The  individuals  interested  in  the  corpora- 
tion as  stockholders,  so  far  as  they  may  be  made  liable  for  its  debts, 
have  the  opportunity,  should  the  liability  render  them  insolvent,  to 
apply  by  voluntary  petition  to  be  relieved  from  that  indebtedness. 
The  corporation  itself,  however,  is  practically  defunct  the  moment 
that  its  business  stops  on  account  of  its  debts,  and,  if  the  same  enter- 
prise ought  to  be  carried  on,  it  is  better  for  the  public  and  the  State 
that  a  new  corporation  be  formed  for  the  purpose. 

Any  natural  person  may  be  adjudged  an  involuntary  bankrupt 
except  wage-earners  and  farmers.  The  involuntary  feature  of  the 
law  is  chiefly  directed  against  frauds  upon  creditors.  A  wage-earner 
who  depends  upon  his  salary  —  a  salary  limited  to  $1,500  a  year  —  is 
not  likely  to  be  able  to  contract  debts  of  any  great  amount,  and  is  not 
likely  to  have  an  opportunity  to  commit  the  frauds  denounced  in  the 
bankruptcy  act.  The  same  thing  may  be  said  of  one  in  tilling  the 
earth.  The  capital  of  the  farmer  is  largely  in  the  land.  His  crops 
are  difficult  of  disposition,  except  at  certain  seasons  of  the  year. 
He  lives  in  a  comparatively  sparsely-settled  community,  in  which  his 
transactions  with  respect  to  his  property  are  likely  to  be  well  known  to 
his  neighbors,  and  the  opportunities  for  fraud  are  quite  limited. 

Any  unincorporated  company,  and  any  corporation  engaged  princi- 
pally in  manufacturing,  trading,  printing,  publishing,  or  mercantile 
pursuits  owing  debts  of  $1,000,  may  be  adjudged  an  involuntary  bank- 
rupt. So,  too,  may  a  private  banker.  This  is  merely  an  effort  to 
limit  the  application  of  the  involuntary  feature  to  that  class  of  cor- 
porations which  would  have  come  under  the  head  of  "  traders "  at 
common  law.  National  banks  and  State  banks  are  not  included, 
because  it  was  properly  assumed  by  Congress  that  the  statutory  pro- 
visions for  winding  up  such  corporations  were  usually  so  summary, 


48  LEIDIGH    CARRIAGE    CO.    V.   STENGEL.  [CHAP.  I. 

complete,  and  drastic  that  no  additional  safeguards  against  frauds  were 
needed.  The  action  of  the  District  Court  sitting  in  bankruptcy  is 
affirmed,  at  the  costs  of  the  appellants.1 

1  Hanover  Nat.  Bank  v.  Moyses,  186  U.  S.  181,  ace. 

Before  the  passage  of  the  bankruptcy  act  of  1841,  it  was  strongly  contended  in 
Congress  that  such  an  act  was  unconstitutional,  as  not  coming  within  the  meaning  of 
a  bankruptcy  law.  It  was  argued  that  the  Constitution  must  be  construed  in  the  light 
of  the  English  laws  in  regard  to  bankruptcy  passed  before  1789.  By  those  laws,  volun- 
tary petitions  had  never  been  allowed  and  the  application  of  the  system  was  confined 
to  traders.  In  Adams  v.  Storey,  1  Paine  C.  C.  79,  82,  Judge  Livingston  of  the  U.  S. 
Supreme  Court  said :  "  So  exclusively  have  bankrupt  laws  operated  on  traders,  that  it 
may  well  be  doubted  whether  an  act  of  Congress  subjecting  to  such  a  law  every  de- 
scription of  persons  within  the  United  States  would  comport  with  the  spirit  of  the 
powers  vested  in  them  in  relation  to  this  subject."  After  the  passage  of  the  act  it 
was  held  to  be  unconstitutional  by  Judge  Wells  of  the  U.  S.  District  Court  for  the 
District  of  Missouri  in  Re  Klein,  2  N.  Y.  Leg.  Obs.  185,  and  an  elaborate  dissenting 
dictum  to  the  same  effect  was  pronounced  by  Judge  Bronson  in  Sackett  v.  Andross, 
5  Hill,  327  ;  but  the  decision  of  the  District  Court  in  Re  Klein  was  reversed  in  the 
Circuit  Court  by  Judge  Catron  of  the  U.  S.  Supreme  Court,  1  How.  277,  note.  The 
question  was  not  raised  in  the  U.  S.  Supreme  Court  because  under  the  act  of  1841  no 
bankruptcy  cases  could  come  before  that  court  for  review.  Nelson  v.  Carland,  1  How. 
265. 

But  many  decisions  in  other  courts  sustained  the  validity  of  the  act.  State  Bank  v. 
Phillips,  6  Ark.  35;  Lalor  v.  Wattles,  8  111.225;  Hastings  v.  Fowler,  2  Ind.  216; 
Loud  v.  Pierce,  25  Me.  233;  Thompson  v.  Alger,  12  Met.  428;  Reed  v.  Vaughan,  15 
Mo.  137 ;  Kittredge  v.  Warren,  14  N.  H.  509  ;  Cutter  v.  Folsom,  17  N.  H.  139  ;  Kun- 
zler  v.  Kohaus,  5  Hill,  317  ;  McCormick  o.  Pickering,  4  N.  Y.  276. 

The  act  of  1867  was,  as  a  whole,  uniformly  held  constitutional.  Re  Silverman,  4  B.  R. 
522  ;  Re  Reynolds,  9  B.  R.  50 ;  Re  Reiman,  11  B.  R.  21 ;  Re  California  Pacific  R.  Co., 
11  B.  R.  193.  The  validity  of  some  provisions  was,  however,  contested.  U.  S.  v.  Fox, 
95  U.  S.  670,  overruling  U.  S.  v.  Clark,  4  B.  R.  59  and  U.  S.  v.  Pusey,  6  B.  R.  284, 
held  unconstitutional  the  provision  (Rev.  Stat.  §  5,132,  9.),  making  it  a  criminal 
offence  to  obtain  goods  on  credit  with  intent  to  defraud  within  three  months  before 
the  beginning  of  bankruptcy  proceedings,  since  the  criminality  of  the  act  was  made 
to  depend  on  subsequent  events.  It  was  also  urged  that  the  provision  of  the  act  was 
unconstitutional  which  allowed  bankrupts  whatever  exemptions  were  allowed  by  the 
law  in  force  in  1 864  of  the  State  in  which  the  proceedings  took  place,  because  it  pre- 
vented the  law  from  being  uniform.  But  the  constitutionality  of  this  provision  was 
regarded  as  settled  by  the  decision  of  Judges  Miller  and  Krekel  in  Re  Beckerkord, 
4  B.  R.  203.  See  also  Re  Jordan,  8  B.  R.  180.  Later,  however,  Congress,  by  act  of 
June  8,  1872,  amended  this  provision  so  as  to  allow  whatever  exemptions  were  allowed 
by  State  laws  in  force  in  1870;  and  by  act  of  March  3,  1873,  which  purported  to  be 
merely  declaratory,  enacted  that  these  exemptions  should  be  allowed  as  agaiust 
debts  created  before  as  well  as  after  the  passage  of  the  State  laws  in  question.  This 
statutory  construction  of  the  amendment  of  1872  was  held  unconstitutional  by  Chief- 
Justice  Waite  in  Re  Deckert,  10  B.  R.  1,  and  similar  decisions  were  rendered  in  Re 
Dillard,  9  B.  R.  8 ;  Re  Duerson,  13  B.  R.  183  ;  Bush  ».  Lester,  55  Ga.  579.  But  con- 
trary decisions  are  Re  Jordan,  8  B.  R.  180 ;  Re  Kean,  8  B.  R.  367;  Re  Smith,  8  B.  R. 
401,"  14  B.  R.  295  ;  Re  Everitt,  9  B.  R.  90 ;  Re  Jordan,  10  B.  R.  427, 

The  provisions  of  the  present  act  in  regard  to  exemptions  were  held  constitutional 
in  Hanover  Nat.  Bank  v.  Moyses,  186  U.  S.  181. 


SECT-  II.]  BALDWIN   V.   HALE.  49 


SECTION  II. 
EXTENT  OF  THE  POWERS  OF  THE  SEVERAL  STATES. 

BALDWIN   v.  HALE. 
SUPREME  COURT  OP  THE  UNITED  STATES,  DECEMBER  TERM,  1863. 

[Reported  in  1   Wallace,  223.] 

THIS  was  a  writ  of  error  to  the  Circuit  Court  for  the  District  of 
Massachusetts ;  the  case,  as  appearing  from  an  agreed  statement  of 
facts,  being  thus  :  — 

J.  W.  Baldwin,  a  citizen  of  Massachusetts,  made,  at  Boston,  in 
that  State,  his  promissory  note,  payable  there,  in  these  words  : 

$2,000  BOSTON,  February  21,  1854. 

Six  months  after  date  I  promise  to  pay  to  the  order  of  myself,  two 
thousand  dollars,  payable  in  Boston,  value  received. 

J.  W.  BALDWIN. 

And  duly  indorsed  it  to  Hale,  the  plaintiff,  then  and  afterwards  a  citi- 
zen of  Vermont.  After  the  date  of  the  note,  but  before  any  suit  was 
brought  upon  it,  Baldwin,  upon  due  proceedings  in  the  Court  of 
Insolvency  of  the  State  of  Massachusetts,  obtained  a  certificate  of 
discharge  from  his  debts;  the  certificate  embracing  b}T  its  terms  all 
contracts  to  be  performed  within  the  State  of  Massachusetts.  Hale 
did  not  prove  his  debt,  nor  take  any  part  in  the  proceedings. 

Suit  having  been  afterwards  brought  against  Baldwin  by  Hale,  the 
indorsee  and  holder  of  the  note,  and  still,  as  originally,  a  citizen  of 
Vermont,  the  question  was  whether  the  certificate  was  a  bar  to  the 
action. 

The  court  below  ruled  that  it  was  not,  and  the  correctness  of  the  rul- 
ing was  now  before  this  court  on  error. 

Messrs.  Hutchins  &  Wheeler  for  the  plaintiff  in  error. 

Mr.  F.  A.  Brooks  for  the  creditor,  Hale. 

Mr.  Justice  CLIFFORD,  after  stating  the  case,  delivered  the  opinion 
of  the  court :  — 

Contract  was  made  in  Boston  and  was  to  be  performed  at  the  place 
where  it  was  made,  and  upon  that  ground  it  is  contended  by  the 
defendant  that  the  certificate  of  discharge  is  a  complete  bar  to  the 
action.  But  the  case  shows  that  the  plaintiff  was  a  citizen  of  Vermont, 
and  inasmuch  as  he  did  not  prove  his  debt  against  the  defendant's 
estate  in  insolvency,  nor  in  any  manner  become  a  party  to  those  pro- 
ceedings, he  insists  that  the  certificate  of  discharge  is  a  matter  inter 
olios,  and  wholly  insufficient  to  support  the  defence. 


50  BALDWIN   V.   HALE.  CHAF.  L 


Adopting  the  views  of  the  court  in  Scribner  et  al.  v.  Fisher,  2  Gray, 
43,  the  defendant  concedes  that  the  law  is  so,  as  between  citizens  of 
different  States,  except  in  cases  where  it  appears  by  the  terms  of  the 
contract  that  it  was  made  and  must  be  performed  in  the  State  enacting 
such  insolvent  law.  Where  the  contract  was  made  and  is  b}'  its  terms 
to  be  performed  in  the  State  in  which  the  certificate  of  discharge  was 
obtained,  the  argument  is,  that  the  discharge  is  entirely  consistent  with 
the  contract,  and  that  the  certificate  operates  as  a  bar  to  the  right  of 
recovery  everywhere,  irrespective  of  the  citizenship  of  the  promisee. 
Plaintiff  admits  that  a  majority  of  the  Supreme  Court  of  Massachusetts, 
in  the  case  referred  to,  attempted  to  maintain  that  distinction,  but  he 
insists  that  it  is  without  any  foundation  in  principle,  and  that  the 
decisions  of  this  court  in  analogous  cases  are  directly  the  other  way. 

Controversies  involving  the  constitutional  effect  and  operation  of 
State  insolvent  laws  have  frequently  been  under  consideration  in  this 
court,  and  unless  it  be  claimed  that  constitutional  questions  must 
always  remain  open,  it  must  be  conceded,  we  think,  that  there  are 
some  things  connected  with  the  general  subject  that  ought  to  be 
regarded  as  settled  and  forever  closed. 

State  legislatures  have  authority  to  pass  a  bankrupt  or  insolvent 
law,  provided  there  be  no  act  of  Congress  in  force  establishing  a 
uniform  system  of  bankruptcy,  conflicting  with  such  law  ;  and,  pro- 
vided the  law  itself  be  so  framed  that  it  does  not  impair  the  obligation 
of  contracts.  Such  was  the  decision  of  this  court  in  Sturges  v.  Crown- 
inslueld,  4  Wheat.  122,  and  the  authority  of  that  decision  has  never 
been  successful!}-  questioned.  Suit  was  brought  in  that  case  against 
the  defendant  as  the  maker  of  two  promissory  notes.  The}'  were 
both  dated  at  New  York,  on  the  22d  day  of  March,  1811,  and  the 
defendant  pleaded  his  discharge  under  an  act  for  the  benefit  of  insol- 
vent debtors  and  their  creditors,  passed  by  the  legislature  of  New 
York  subsequent!}'  to  the  date  of  the  notes  in  conti'oversy.  Contracts 
in  that  case,  it  will  be  observed,  were  made  prior  to  the  passage  of 
the  law,  and  the  court  held,  for  that  reason,  that  the  law,  or  that 
feature  of  it,  was  unconstitutional  and  void,  as  impairing  the  obliga- 
tion of  contracts  within  the  meaning  of  the  Constitution  of  the  United 
States.  Suggestion  is  made  that  the  ruling  of  the  court  in  the  case  of 
McMillan  v.  McNeill,  4  Wheat.  209,  decided  at  the  same  term,  asserts 
a  different  doctrine,  but  we  think  not,  if  the  facts  of  the  case  are 
properly  understood. 

Recurring  to  the  statement  of  the  case,  it  appears  that  the  contract 
was  made  in  Charleston,  in  the  State  of  South  Carolina,  and  it  is  true 
that  both  parties  resided  there  at  the  time  the  contract  was  made,  but 
the  defendant  subsequently  removed  to  New  Orleans,  in  the  State  of 
Louisiana,  and  it  was  in  the  latter  State  where  he  obtained  the  certifi- 
cate of  discharge  from  his  debts.  He  was  also  one  of  a  firm  doing 
business  in  Liverpool,  and  a  commission  of  bankruptcy  had  been 
issued  there,  both  against  him  and  his  partner,  and  they  respectively 


SECT.  II.]  BALDWIN   V.   HALE.  51 

obtained  certificates  of  discharge.  Suit  was  brought  in  the  District 
Court  for  the  District  of  Louisiana,  and  the  defendant  pleaded  those 
certificates  of  discharge  in  bar  of  the  action,  and  the  plaintiff  demurred 
to  the  plea.  Under  that  state  of  the  case  and  of  the  pleadings,  the 
court  held  that  the  certificate  of  discharge  obtained  in  the  State  of 
Louisiana  was  no  defence  to  the  suit,  and  very  properly  remarked 
that  the  circumstance  that  the  State  law  was  passed  before  the  debt 
was  contracted  made  no  difference  in  the  application  of  the  principle. 
Bearing  in  mind  that  the  plaintiff  was  a  citizen  of  South  Carolina,  and 
that  the  contract  was  made  there,  it  is  obvious  that  the  remark  of  the 
court  is  entirely  consistent  with  the  decision  in  the  former  case. 

Secondly,  the  court  also  held  that  a  discharge  under  a  foreign  bank- 
rupt law  was  no  bar  to  an  action  in  the  courts  of  the  United  States,  on 
a  contract  made  in  this  country.  Speaking  of  that  case,  Mr.  Justice 
Johnson  afterwards  remarked  that  it  decided  nothing  more  than  that 
insolvent  laws  have  no  extraterritorial  operation  upon  the  contracts 
of  other  States,  and  that  the  anterior  or  posterior  character  of  the  law 
with  reference  to  the  date  of  the  contract  makes  no  difference  in  the 
application  of  that  principle.  Eight  }*ears  later  the  question,  in  all  its 
phases,  was  again  presented  to  this  court,  in  the  case  of  Ogden  v. 
Saunders,  12  Wheat.  213,  and  was  very  full}-  examined. 

Three  principal  points  were  ruled  by  the  court.  First,  the  court  held 
that  the  power  of  Congress  to  establish  uniform  laws  on  the  subject  of 
bankruptcies  throughout  the  United  States  did  not  exclude  the  right 
of  the  States  to  legislate  on  the  same  subject,  except  when  the  power 
had  actually  been  exercised  by  Congress,  and  the  State  laws  conflicted 
with  those  of  Congress.  Secondly,  that  a  bankrupt  or  insolvent  law 
of  any  State  which  discharges  both  the  person  of  the  debtor  and  his 
future  acquisitions  of  property,  was  not  a  law  impairing  the  obligation 
of  contracts  so  far  as  respects  debts  contracted  subsequent  to  the  pas- 
sage of  such  law.  Thirdly,  but  that  a  certificate  of  discharge  under 
such  a  law  cannot  be  pleaded  in  bar  of  an  action  brought  b}T  a  citizen 
of  another  State  in  the  courts  of  the  United  States,  or  of  any  other 
State  than  that  where  the  discharge  was  obtained.  Much  diversity  of 
opinion,  it  must  be  admitted,  existed  among  the  members  of  the  court 
on  that  occasion,  but  it  is  clear  that  the  conclusions  to  which  the 
majority  came  were  in  precise  accordance  with  what  had  been  sub- 
stantially determined  in  the  two  earlier  cases  to  which  reference  has 
been  made.  Misapprehension  existed,  it  seems,  for  a  time,  whether 
the  second  opinion  delivered  by  Mr.  Justice  Johnson  in  that  case  was, 
in  point  of  fact,  the  opinion  of  a  majority  of  the  court,  but  it  is  difficult 
to  see  any  ground  for  an}-  such  doubt.  Referring  to  the  opinion,  it 
will  be  seen  that  he  states  explicitly  that  he  is  instructed  to  dispose  of 
the  cause,  and  he  goes  on  to  explain  that  the  majority  on  the  occasion 
is  not  the  same  as  that  which  determined  the  general  question  pre- 
viously considered.  Ample  authority  exists  for  regarding  that  opinion 
as  the  opinion  of  the  court,  independently  of  what  appears  in  the  pub- 


52  BALDWIN   V.   HALE.  [CHAP.  \. 

lished  report  of  the  case.  When  the  subsequent  case  of  Boyle  v. 
Zacharie  et  a£,  6  Pet.  348,  was  first  called  for  argument,  inquiry  was 
made  of  the  court  whether  the  opinion  in  question  was  adopted  by  the 
other  judges  who  concurred  in  the  judgment  of  the  court.  To  which 
Marshall,  C.  J.,  replied,  that  the  judges  who  were  in  the  minority  of 
the  court  upon  the  general  question  concurred  in  that  opinion,  and  that 
whatever  principles  were  established  in  that  opinion  were  to  be  con- 
sidered no  longer  open  for  controvers}-,  but  the  settled  law  of  the  court. 
Judge  Story  delivered  the  unanimous  opinion  of  the  court  in  that  case 
during  the  same  session,  and  in  the  course  of  the  opinion  he  repeated 
the  explanations  previously  given  by  the  Chief  Justice.  Boyle  v. 
Zacharie  et  aL,  6  Pet.  643.  Explanations  to  the  same  effect  were 
also  made  by  the  present  chief  justice  in  the  case  of  Cook  u.  Moffat 
et  al.,  5  How.  310,  which  had  been  ruled  by  him  at  the  circuit.  He 
had  ruled  the  case  in  the  court  below,  in  obedience  to  what  he  under- 
stood to  be  the  settled  doctrine  of  the  court,  and  a  majority  of  the 
court  affirmed  the  judgment.  Acquiescing  in  that  judgment  as  a  cor- 
rect exposition  of  the  law  of  the  court,  he  nevertheless  thought  it 
proper  to  restate  the  individual  opinion  which  he  entertained  upon  the 
subject,  but  before  doing  so,  he  gave  a  clear  and  satisfactory  exposition 
of  what  had  previously  been  decided  by  the  court.  Those  remarks 
confirm  what  had  at  a  much  earlier  period  been  fully  explained  by  the 
former  Chief  Justice  and  his  learned  associate.  Taken  together,  these 
several  explanations  ought  to  be  regarded  as  final  and  conclusive. 
Assuming  that  to  be  so,  then,  it  was  settled  by  this  court,  in  that 
case,  —  1.  That  the  power  given  to  the  United  States  to  pass  bank- 
rupt laws  is  not  exclusive.  2.  That  the  fair  and  ordinary  exercise  of 
that  power  by  the  States  does  not  necessarily  involve  a  violation  of  the 
obligation  of  contracts,  multo  fortiori  of  posterior  contracts.  3.  But 
when  in  the  exercise  of  that  power  the  States  pass  beyond  their  own 
limits  and  the  rights  of  their  own  citizens,  and  act  upon  the  rights  of 
citizens  of  other  States,  there  arises  a  conflict  of  sovereign  power  and 
a  collision  with  the  judicial  powers  granted  to  the  United  States 
which  renders  the  exercise  of  such  a  power  incompatible  with  the 
rights  of  other  States,  and  with  the  Constitution  of  the  United  States. 
Saunders,  a  citizen  of  Kentucky,  brought  suit  in  that  case  against 
Ogden,  who  was  a  citizen  of  Louisiana  at  the  time  the  suit  was  brought. 
Plaintiff  declared  upon  certain  bills  of  exchange  drawn  by  one  Jordan, 
at  Lexington,  in  the  State  of  Kentucky,  upon  Ogden,  the  defendant,  in 
the  city  of  New  York,  where  he  then  resided.  He  was  then  a  citizen  of 
the  State  of  New  York,  and  the  case  shows  that  he  accepted  the  bills 
of  exchange  at  the  city  of  New  York,  and  that  they  were  subsequently 
protested  for  non-pa}7ment. 

Defendant  pleaded  his  discharge  under  the  insolvent  law  of  New 
York,  passed  prior  to  the  date  of  the  contract.  Evidently,  therefore, 
the  question  presented  was,  whether  a  discharge  of  a  debtor  under  a 
State  insolvent  law  was  valid  as  against  a  creditor  or  citizen  of  another 


SECT.  II.]  BALDWIN   V.   HALE.  53 

State,  who  had  not  subjected  himself  to  the  State  laws  otherwise  than 
by  the  origin  of  the  contract,  and  the  decision  in  express  terms  was, 
that  such  a  proceeding  was  "  incompetent  to  discharge  a  debt  due  a 
citizen  of  another  State."  Whenever  the  question  has  been  presented 
to  this  court  since  that  opinion  was  pronounced,  the  answer  has  uni- 
formly been  that  the  question  depended  upon  citizenship.  Such  were 
the  views  of  the  court  in  Suydam  et  al  v.  Broadnax  et  al.,  14  Pet.  75, 
where  it  was  expressly  held  that  a  certificate  of  discharge  cannot  be 
pleaded  in  bar  of  an  action  brought  by  a  citizen  of  another  State  in 
the  courts  of  the  United  States,  or  of  any  other  State  than  that  where 
the  discharge  was  obtained.  Undoubtedly  a  State  may  pass  a  bank- 
rupt or  insolvent  law  under  the  conditions  before  mentioned,  and  such 
a  law  is  operative  and  binding  upon  the  citizens  of  the  States,  but  we 
repeat  what  the  court  said  in  Cook  v.  Moffat  et  al,  5  How.  308,  that 
such  laws  "  can  have  no  effect  on  contracts  made  before  their  enact- 
ment, or  bej'ond  their  territory."  Judge  Story  says,  in  the  case  of 
Springer  v.  Foster  et  al.,  2  Story,  C.  C.  387,  that  the  settled  doctrine 
of  the  Supreme  Court  is,  that  no  State  insolvent  laws  can  discharge  the 
obligation  of  any  contract  made  in  the  State,  except  such  contracts  as 
are  made  between  citizens  of  that  State.  He  refers  to  the  case  of 
Ogden  v.  Saunders  to  support  the  proposition,  and  remarks,  without 
qualification,  that  the  doctrine  of  that  case  was  subsequently  affirmed 
in  Boyle  v.  Zacharie,  where  there  was  no  division  of  opinion.  In  the 
last-mentioned  case  he  gave  the  opinion  of  the  court,  and  he  there 
expressed  substantially  the  same  views.  Confirmation  of  the  fact 
that  such  was  his  opinion  may  be  found  both  in  his  Commentaries 
on  the  Constitution  and  in  his  treatise  entitled  Conflict  of  Laws.  His 
view  as  to  the  result  of  the  various  decisions  of  this  court  is,  that  they 
establish  the  following  propositions:  1.  That  State  insolvent  laws  may 
applj7  to  all  contracts  within  the  State  between  citizens  of  the  State. 
2.  That  they  do  not  apply  to  contracts  made  within  the  State  between 
a  citizen  of  the  State  and  a  citizen  of  another  State.  3.  That  they  do 
not  appty  to  contracts  not  made  within  the  State.  2  Story  on  Const. 
§  1390  (3d  edition),  p.  281 ;  Story  on  Confl.  L.,  §  341,  p.  573. 

Chancellor  Kent  also  says  that  the  discharge  under  a  State  law  is 
not  effectual  as  against  a  citizen  of  another  State  who  did  not  make 
himself  a  party  to  the  proceedings  under  the  law.  2  Kent  Com.  (9th 
ed.),  p.  503.  All  of  the  State  courts,  or  nearly  all,  except  the  Supreme 
Court  of  Massachusetts,  have  adopted  the  same  view  of  the  subject, 
and  that  court  has  recently  held  that  a  certificate  of  discharge  in 
insolvency  is  no  bar  to  an  action  by  a  foreign  corporation  against  the 
payee  of  a  note,  who  indorsed  it  to  the  corporation  in  blank  before  its 
maturity,  although  the  note  itself  was  executed  and  made  payable  in 
that  State  by  a  citizen  of  the  State.  Repeated  decisions  have  been 
made  in  that  court,  which  seem  to  support  the  same  doctrine.  Savoye 
v.  Marsh,  10  Met.  594  ;  Braynard  v.  Marshall,  8  Pick.  196.  But  a 
majority  of  the  court  held,  in  Scribner  et  al.  v.  Fisher,  2  Gray,  43,  that 


54  BALDWIN   V.   HALE.  [CHAP.  I. 

if  the  contract  was  to  be  performed  in  the  State  where  the  discharge 
was  obtained,  it  was  a  good  defence  to  an  action  on  the  contract, 
although  the  plaintiff  was  a  citizen  of  another  State  and  had  not  in 
any  manner  become  a  party  to  the  proceedings.  Irrespective  of 
authority  it  would  be  difficult  if  not  impossible  to  sanction  that  doc- 
trine. Insolvent  systems  of  every  kind  partake  of  the  character  of  a 
judicial  investigation.  Parties  whose  rights  are  to  be  affected  are 
entitled  to  be  heard ;  and  in  order  that  they  may  enjo}'  that  right  they 
must  first  be  notified.  Common  justice  requires  that  no  man  shall  be 
condemned  in  his  person  or  property  without  notice  and  an  opportun- 
ity to  make  his  defence.  Nations  et  al.  v.  Johnson '  et  aL,  24  How. 
203  ;  Bos  well's  Lessee  v.  Otis  et  al.  9  How.,  350  ;  Oakley  v.  Aspinwall, 
4  Comst.  514. 

Regarded  merely  in  the  light  of  principle,  therefore,  the  rule  is  one 
which  could  hardly  be  defended,  as  it  is  quite  evident  that  the  courts  of 
one  State  would  have  no  power  to  require  the  citizens  of  other  States 
to  become  parties  to  an}'  such  proceeding.  Su3'dam  et  al  v.  Broadnax 
et  «/.,  14  Pet.  75.  But  it  is  unnecessary  to  pursue  the  inquiry,  as  the 
decisions  of  this  court  are  directl}'  the  other  way ;  and  so  are  most  of 
the  decisions  of  the  State  courts.  Donnelly  v.  Corbett,  3  Seld.  500 ; 
Poe  v.  Duck,  5  Md.  1  ;  Anderson  v.  Wheeler,  25  Conn.  607  ;  Felch  v. 
Bugbee  et  a/.,  48  Me.  9  ;  Demerrit  v.  Exchange  Bank,  10  Law  Rep. 
(x.  s.)  606  ;  Woodhull  v.  Wagner,  Bald.  C.  C.  300. 

Insolvent  laws  of  one  State  cannot  discharge  the  contracts  of 
citizens  of  other  States,  because  they  have  no  extraterritorial  opera- 
tion, and  consequently  the  tribunal  sitting  under  them,  unless  in  cases 
where  a  citizen  of  such  other  State  voluntarily  becomes  a  party  to  the 
proceeding,  has  no  jurisdiction  in  the  case.  Legal  notice  cannot  be 
given,  and  consequently  there  can  be  no  obligation  to  appear,  and  of 
course  there  can  be  no  legal  default.  The  judgment  of  the  Circuit 
Court  is  therefore  affirmed  with  costs.  Judgment  accordingly^- 

1  The  U.  S.  Supreme  Court  has  since  frequently  reiterated  the  doctrine  that  a  dis- 
charge under  a  State  insolvent  law  cannot  affect  non-residents.  Baldwin  v.  Bank  of 
Newbury,  1  Wall.  234 ;  Oilman  v.  Lockwood,  4  Wall.  409 ;  Denny  v.  Bennett,  128  U.  S. 
489;  Cole  v.  Cunningham,  133  U.  S.  107,  115.  In  Denny  v.  Bennett,  the  reason  of 
the  rule  is  stated  (p.  498).  "The  objection  to  the  extraterritorial  operation  of  a 
State  insolvent  law  is  that  it  cannot,  like  the  bankrupt  law  passed  by  Congress  under 
its  constitutional  grant  of  power,  release  all  debtors  from  the  obligation  of  the  debt. 
The  authority  to  deal  with  the  property  of  the  debtor  within  the  State,  so  far  as  it 
does  not  impair  the  obligation  of  contracts,  is  conceded."  This  passage  was  quoted 
with  approval  in  Brown  v.  Smart,  145  U.  S.  454. 

It  has  been  generally  supposed  that  the  doctrine  rested  upon  principles  drawn  from 
the  Constitution  of  the  United  States.  In  Phenix  Nat.  Bank  v.  Batcheller,  151  Mass. 
589,  involving  the  same  question  as  Baldwin  v.  Hale,  HOLMES,  J.,  said  (p.  591) :  — 

"The  often  repeated  view  of  the  Supreme  Court  of  the  United  States  is,  that  dis- 
charges like  the  present  are  void  for  want  of  jurisdiction,  and  that  statutes  purporting 
to  authorize  them  are  beyond  the  power  of  the  States' to  pass.  Baldwin  v.  Hale,  1  Wall. 
223,  233 ;  Baldwin  v.  Bank  of  Newbury,  1  Wall.  234 ;  Oilman  v.  Lockwood,  4  Wall. 
409 ;  Denny  v.  Bennett,  128  U.  S.  489,  497 ;  Cole  v.  Cunningham,  133  U.  S.  107,  115. 
Whether  that  court  would  regard  a  decision  to  the  contrary  by  a  State  court  as  subject 


SECT.  II.]  PULLEN   V.   HILLMAN.  55 

PULLEN  v.   HILLMAN. 
SUPREME  JUDICIAL  COURT  OP  MAINE,  DECEMBER  16,  1891. 

[Reported  in  84  Maine,  129.] 

ASSUMPSIT  upon  a  promissory  note  given  by  the  defendant  at  Mon- 
son,  Piscataquis  County,  March  31,  1888,  pa3-able  to  the  plaintiff, 
then  a  resident  of  the  same  town,  at  the  Kineo  National  Bank  of 
Dover,  in  said  county.  The  writ  is  dated  August  30,  1890.  The 
plaintiff  removed  April  15,  1889,  from  the  State  to  New  York,  where 
he  has  ever  since  been  a  citizen  of  that  State,  residing  at  Cortland. 

After  the  plaintiffs  removal  from  the  State  and  on  the  ninth  day  of 
January,  1890,  the  defendant  obtained  a  discharge  in  the  court  of  in- 
to review  by  them  upon  constitutional  grounds,  does  not  appear  very  clearly  from  any 
language  of  theirs  which  has  been  called  to  our  attention,  unless  it  be  the  following, 
repeated  in  Baldwin  v.  Hale,  1  Wall.  223,231,  from  Ogden  v.  Saunders,  12  Wheat.  213, 
369  :  "  But  when,  in  the  exercise  of  that  power,  the  States  pass  beyond  their  own 
limits,  and  the  rights  of  their  own  citizens,  and  act  upon  the  rights  of  citizens  of  other 
States,  there  arises  a  conflict  of  sovereign  power,  and  a  collision  with  the  judicial 
powers  granted  to  the  United  States,  which  renders  the  exercise  of  such  a  power 
incompatible  with  the  rights  of  other  States  and  with  the  Constitution  of  the  United 
States."  This  is  somewhat  emphasized  as  the  deliberate  view  of  the  court,  not  only 
by  its  original  mode  of  statement,  but  by  their  adhesion  to  it  after  the  dissent  of  Chief 
Justice  Taney  in  Cook  v.  Moffat,  5  How.  295,  310.  See  Scribner  v.  Fisher,  2  Gray, 
43,  47. 

"  This  language  certainly  gives  the  impression  that  our  decision  would  be  regarded 
as  subject  to  review,  possibly  on  the  ground  of  an  implied  restriction  on  the  power  to 
pass  insolvent  laws  reserved  to  the  States  (Denny  v.  Bennett,  128  U.  S.  489,  498); 
possibly  on  the  ground  that  the  discharge  would  impair  the  obligation  of  contracts 
with  persons  not  within  the  jurisdiction  (Cook  v.  Moffat,  5  How.  295,  308) ;  possibly 
by  reason  of  the  Fourteenth  Amendment  (Pennoyer  v.  Neff,  95  U.  S.  714) ;  possibly 
on  some  vaguer  ground.  We  feel  the  force  of  the  reasoning  quoted  from  Stoddard  v. 
Harrington,  100  Mass.  87,  89,  but  that  case  did  not  profess  to  weaken  the  authority 
of  Kelley  v.  Drury,  and,  moreover,  the  question  which  we  are  now  considering  is  not 
what  would  be  oar  own  opinion,  but  what  seems  to  be  the  opinion  of  the  Supreme 
Court  of  the  United  States. 

"  The  decision  in  Kelley  v.  Drury  did  not  go  upon  any  nice  inquiry  whether  it  was 
subject  to  review,  but  upon  the  ground  that  this  court  deferred  to  the  decision  of  the 
Supreme  Court  of  the  United  States,  that  discharges  like  the  present  were  not  binding 
outside  the  jurisdiction,  and  that,  this  being  so,  a  discrimination  should  not  be  made  in 
favor  of  our  citizens  in  proceedings  in  the  State  court  in  distinction  from  proceedings 
in  the  courts  of  the  United  States." 

Whatever  the  basis  of  the  doctrine,  it  is  uniformly  followed  by  the  State  courts. 
The  numerous  cases  before  1893  are  collected  in  6  Harv.  L.  Rev.  349.  Later  cases  are 
Silverman  v.  Lessor,  88  Me.  599;  Pattee  v.  Paige,  163  Mass.  352  ;  Chase  v.  Henry, 
166  Mass.  577,  168  Mass.  28;  Bergner  &  Engel  Brewing  Co.  v.  Dreyfus,  172  Mass. 
154.  In  Chase  v.  Henry,  it  was  held  (three  judges  dissenting)  that  a  discharge  under 
the  State  law  did  not  bar  a  debt  due  to  a  partnership,  of  which  one  member  was  a 
citizen  of  another  State.  In  Bergner  &  Engel  Brewing  Co.  v.  Dreyfus  it  was  held 
(Field,  C.  J.,  dissenting)  that  such  a  discharge  did  not  bar  a  debt  due  to  a  corporation 
chartered  by  another  State,  though  carrying  on  business  in  Massachusetts. 

A  State  discharge  bars  a  debt  due  to  a  citizen  of  the  same  State,  although  he  holds 
the  claim  as  trustee  for  citizens  of  another  State.  Wade  v.  Sewell,  56  Fed.  Rep.  129. 


56  PULLEN   V.   HILLMAN.  [CHAP.  I. 

solvency,  upon  his  petition  filed  in  that  court  June  3,  1889.  This 
discharge  was  pleaded  in  bar  of  the  plaintiff's  action.  It  was  admitted 
that  the  plaintiff  did  not  prove  his  debt  in  the  insolvent  court  nor 
appear  in  any  of  its  proceedings. 

Henry  Hudson,  for  plaintiff. 

J.  F.  Sprague,  for  defendant 

Counsel  cited  :  Scribner  v.  Fisher,  2  Gray,  43  ;  Brigham  v.  Hender- 
son, 1  Gush.  430 ;  Converse  v.  Bradley,  Ib.  434 ;  Stoddard  v.  Harring- 
ton, 100  Mass.  88  ;  Brown  v.  Bridge,  106  Mass.  563. 

EMERY,  J.  The  contract  which  is  the  subject  of  this  action  was 
made  within  this  State  between  citizens  of  this  State,  and  was  to  be 
performed  within  this  State.  Subsequently,  the  promissor,  the  de- 
fendant, after  regular  proceedings  in  the  proper  court  of  insolvency  in 
this  State,  was  granted  by  that  court  a  discharge  from  all  his  debts 
under  R.  S.,  c.  70,  §  44.  This  discharge  was  properly  pleaded  in  bar 
of  this  action,  and  it  is  conceded  that  it  would  be  an  effectual  bar, 
if  the  promisee,  the  plaintiff,  who  was  a  citizen  of  this  State  at  the 
time  of  making  the  contract,  had  also  been  a  citizen  of  this  State  at  the 
time  of  the  proceedings  in  the  court  of  insolvency.  But  the  plaintiff 
after  the  making  of  the  contract,  and  before  the  beginning  of  the  in- 
solvency proceedings,  had  changed  his  residence  from  Maine  to  New 
York,  and  had  become  a  citizen  of  the  latter  State  and  had  not  since 
been  in  Maine.  He  did  not  prove  his  claim  under  this  contract  in  the 
insolvency  court,  nor  in  any  way  appear  therein. 

It  is  urged  that,  as  the  contract  was  made  in  Maine,  to  be  performed 
in  Maine,  and  both  parties  were  citizens  of  Maine  at  the  time,  they 
must  be  held  to  have  contracted  with  reference  to  the  then  existing 
insolvency  law  of  Maine,  which  provided  for  this  discharge  from  the 
contract.  It  is  argued  that  the  insolvent  law  should  be  read  into  the 
contract,  and  that  therefore  the  contract  must  be  held  to  stipulate  for 
such  a  discharge  as  is  here  pleaded. 

We  think,  however,  the  question  is  not  one  of  the  interpretation  of 
a  contract  or  statute,  but  is  one  of  jurisdiction.  Did  the  court  of  insol- 
vency have  the  jurisdiction  to  discharge  the  defendant  from  this 
contract  ? 

After  much  discussion  by  courts  and  jurists,  and  after  some  conflict 
of  opinion,  it  must  now  be  considered  fully  and  firmly  established  as  a 
general  proposition  that  a  State  cannot  give  its  courts  an}-  jurisdictional 
power  to  discharge  a  citizen  of  such  State  from  his  obligation  "to  a  citi- 
zen of  another  State,  when  the  latter  has  not  in  any  way  submitted 
himself  or  his  claim  to  such  court.  This  proposition  is  not  modified 
by  the  circumstance  that  the  contract  was  made  and  was  to  be  per- 
formed in  the  State  in  which  the  debtor  resides.  The  place  of  the 
citizenship  of  the  parties,  not  the  place  of  the  making  or  performing 
the  contract,  defines  the  jurisdiction  of  the  court.  All  this  is  now  so 
well  settled  by  authority,  that  it  is  not  advisable  to  occupy  space  in 
repeating  or  even  epitomizing  the  reasoning  by  which  the  courts  finally 


SECT.  II.]  PULLEN   V.   HILLMAN.  57 

reached  this  conclusion.  The  citation  of  a  few  cases  out  of  many 
should  be  sufficient.  Felch  v.  Bugbee,  48  Me.  9;  Hills  v.  Carlton, 
74  Me.  156  ;  Phoenix  Bank  v.  Bacheller,  151  Mass.  589  ;  Baldwin 
v.  Hale,  1  Wall.  223  ;  Oilman  v.  Lockwood,  4  Wall.  409;  Denny  v. 
Bennett,  128  U.  S.  489. 

Does  the  additional  circumstance  in  this  case,  that  the  plaintiff  was 
a  citizen  of  this  State  at  the  date  of  the  contract,  though  not  at  the 
date  of  the  insolvency  proceedings,  give  the  court  of  insolvency  juris- 
diction over  his  claim  under  this  contract  ?  To  so  hold,  is  to  hold  that 
one  who  was  a  citizen  of  this  State  when  he  acquired  here  contractual 
rights,  choses  in  action,  against  another  citizen  of  this  State  leaves 
them  behind  him  in  this  State  subject  to  be  discharged  by  the  courts 
of  this  State  without  notice  to  him  after  he  has  become  a  citizen  of 
another  State.  It  is  to  hold  that  he,  who  was  once  a  citizen  of  this 
State,  cannot  remove  himself  and  his  property  from  its  jurisdiction.  It 
is  to  hold,  that  a  citizen  of  another  State  coming  into  this  State  and 
making  contracts  here,  to  be  performed  here,  has  greater  immunities 
than  a  citizen  of  our  own  State.  Neither  reason  nor  authorit}'  leads  us 
to  such  a  conclusion. 

A  State  may  indeed  grant  its  courts  jurisdiction  over  lands  and  goods 
within  its  limits,  though  the  owner  ma}1  reside  beyond  those  limits. 
Such  objects  are  visible  and  tangible,  and  though  the  title  to  them  may 
follow  the  owner,  the  thing,  the  substance,  is  within  the  State.  They 
have  a  situs.  They  can  be  taxed  where  they  are  situated.  In  such 
cases  the  owner  may  be  presumed  to  have  left  such  property  in  the 
possession  of  a  local  tenant  or  agent.  But  even  then,  the  speciflc  prop- 
erty to  be  affected  by  the  judgment  of  the  court  must  be  attached  upon 
process,  and  such  notice  given  as  is  feasible. 

Contractual  rights,  obligations,  mere  choses  in  action,  however,  are 
not  visible  nor  tangible,  nor  local.  They  have  no  situs.  They  do  not 
exist  as  things,  as  substances,  within  any  territorial  limits.  They 
follow  the  person  of  the  creditor.  They  are  his  wherever  he  lives. 
Saunders  v.  Weston,  74  Me.  85.  Even  the  taxing  power  of  the 
State  in  which  the  debtor  resides  cannot  reach  them.  Only  the  State 
of  the  creditor's  residence  can  deal  with  them,  at  least  during  the  life- 
time of  the  creditor.  Osgood  v.  Maguire,  61  N.  Y.  524;  Bond  Tax 
Cases,  15  Wall.  300 ;  Tappan  v.  Bank,  19  Wall.  490.  The  only  court, 
therefore,  that  can  effectually  discharge  such  a  claim  is  the  court  that 
has  jurisdiction  over  the  person  of  the  creditor  himself.  But  unless 
the  creditor  voluntarily  submits  to  the  jurisdiction  of  the  court,  by  tak- 
ing some  part  in  the  proceedings  before  it,  jurisdiction  can  only  be 
acquired  by  service  of  process  upon  him  within  the  territorial  limits  of 
the  State  establishing  the  court.  Beyond  those  limits,  no  process  of 
any  court  has  any  force  in  acquiring  jurisdiction  of  the  person.  This 
proposition  is  firmly  settled  by  authority  as  well  as  by  reason.  Love- 
joy  v.  Allen,  33  Me.  414 ;  Baldwin  v.  Hale,  1  Wall.  223 ;  Pennoyer 
V.  Neff,  95  U.  S.  714. 


58  LOWENBERG  V.   LEVINE.  [CHAP.  L 

Ability  to  serve  process  within  the  State  is,  therefore,  the  test  of 
the  court's  power  to  acquire  jurisdiction  in  an}-  proceeding.  If  at  the 
beginning  of  the  insolvency  proceedings  the  process  of  the  court  of 
insolvency  could  have  been  served  on  the  plaintiff  within  the  State,  the 
court  could  have  acquired  jurisdiction  over  him  by  such  service.  The 
situation  at  that  time,  not  at  the  date  of  the  contract,  is  the  criterion. 
If  the  plaintiff  was  then  a  citizen  of  this  State,  he  could  have  been 
served  with  process  and  subjected  to  the  jurisdiction  of  the  court, 
although  he  may  never  before  have  been  within  the  State,  and  although 
the  contract  may  have  been  made,  and  was  to  be  performed  in  another 
State.  So  much  will  be  conceded  03-  the  defendant.  But  it  follows, 
that  if  the  plaintiff  was  not  then  a  citizen  of  this  State  (at  the  time  of 
the  insolvency  proceedings),  no  process  could  have  reached  him,  and 
he  could  not  be  subjected  to  the  court's  jurisdiction  even  though  for  all 
his  life  before  he  ma}'  have  resided  within  the  State. 

The  defendant's  counsel  strenuously  urges  that  such  a  conclusion 
will  work  great  hardship  upon  a  debtor  by  enabling  his  home  creditors 
to  avoid  his  insolvency  proceedings  by  removing  from  the  State.  If 
this  be  a  hardship,  the  remedy  is  with  Congress  in  the  enactment  of  a 
uniform  bankrupt  law  for  all  the  States.  The  court  cannot  usurp  the 
power  or  jurisdiction  it  does  not  have. 

Counsel  also  relies  upon  Stoddard  v.  Harrington,  100  Mass.  88,  and 
upon  some  dicta  in  later  opinions  of  the  United  States  Supreme  Court. 
The  dicta  have  little  weight,  as  the  precise  question  was  evidently  not 
in  the  mind  of  the  justices  writing  the  opinions. 

The  length  of  this  opinion  shows  our  respect  for  the  eminent  court 
which  pronounced  the  judgment  in  Stoddard  v.  Harrington,  but  we 
think  that  decision  cannot  be  sustained,  and  that  it  must  be  overruled 
when  the  same  question  is  again  presented  to  that  court.  On  the  other 
hand,  our  conclusion  is  in  harmom*  with  that  reached  by  the  courts  of 
New  Hampshire  and  Vermont  upon  the  same  question.  Norris  v. 
Atkinson,  64  N.  H.  87 ;  Roberts  v.  Atherton,  60  Vt.  563. 

Defendant  defaulted.1 


LOWENBERG   v.    LEVINE. 
SUPKEME  COURT  OF  CALIFORNIA,  FEBRUARY  4,  1892. 

[Reported  in  93  California,  215.] 

DE  HAVEN,  J.  Action  upon  a  money  judgment  recovered  by  plaintiff 
against  defendant  in  a  court  of  general  jurisdiction  in  the  territory  of 
Montana  while  plaintiff  and  defendant  were  residents  of  that  territoiT, 
and  upon  a  contract  made  and  to  be  performed  there. 

1  In  Cole  v.  Cunningham,  133  U.  S.  107,  115,  Fuller,  C.  J.,  in  delivering  the  opinion 
of  the  court,  said:  "  State  insolvent  laws  are  .  .  .  binding  upon  such  persons  as  were 
citizens  of  the  State  at  the  time  the  debt  was  contracted." 


SECT.  II.]  LOWENBERG   V.   LEVINE.  59 

Subsequent!}7  to  the  rendition  of  this  judgment,  the  defendant  filed 
in  the  Superior  Court  of  the  city  and  count}7  of  San  Francisco  his  peti- 
tion in  insolvency,  and  such  proceedings  were  thereafter  had  in  the 
matter  that  upon  August  14,  1888,  the  court  duly  made  and  entered 
its  decree  discharging  defendant  from  all  his  debts  and  liabilities.  At 
the  date  of  this  decree,  and  during  the  entire  time  of  the  pendency  of 
these  insolvency  proceedings,  both  plaintiff  and  defendant  were  resi- 
dents of  this  State.  In  his  answer,  the  defendant  pleads  this  decree  in 
insolvency  as  a  bar  to  this  action.  The  case  was  submitted  to  the 
court  below  upon  an  agreed  statement  of  facts  showing  the  matters 
hereinbefore  stated,  and  in  addition  thereto  the  following  facts  :  "That 
in  the  schedule  of  indebtedness  of  defendant,  Levine,  filed  with  said 
petition  in  insolvency,  was  set  forth,  as  required  by  law,  a  statement 
of  the  judgment  rendered  against  him  and  in  favor  of  the  plaintiff, 
Lowenberg,  by  the  District  Court  of  the  third  judicial  district  of  the 
territory  of  Montana,  in  and  for  Lewis  and  Clarke  County,  as  set  forth 
in  plaintiff's  complaint ;  that  said  plaintiff,  Lowenberg,  never  filed  a 
verified  or  other  statement  of  his  claim  and  demand  in  said  proceedings 
in  involuntary  insolvency,  or  in  any  other  manner  whatever  partici- 
pated in  any  of  the  proceedings  connected  therewith  ;  but  such  failure 
to  participate  therein  was  due  to  no  neglect,  default,  or  omission  on 
the  part  of  the  defendant,  Levine." 

The  court  below  gave  judgment  for  the  plaintiff,  and  the  defendant 
appeals. 

The  only  question  presented  in  the  record  before  us  is,  whether,  in 
view  of  the  facts  as  above  stated,  the  decree  discharging  defendant 
from  his  debts  and  liabilities  is  a  bar  to  this  action. 

It  is  claimed  by  the  appellant  that  as  the  parties  hereto  were  resi- 
dent citizens  of  this  State  at  the  time  when  the  insolvency  proceedings 
were  begun,  and  until  their  completion,  the  decree  therein  discharging 
him  from  all  his  debts  is  conclusive  upon  the  plaintiff  and  is  a  bar  to 
this  action,  and  that  the  binding  force  of  such  decree  is  in  no  wise 
affected  by  the  fact  that  the  judgment  sued  upon  was  recovered  in  the 
territory  of  Montana,  and  is  based  upon  a  contract  made  and  to  be 
performed  there.  In  support  of  this  proposition,  counsel  for  appellant 
rely  upon  Felch  v.  Bugbee,  48  Me.  9,  77  Am.  Dec.  203 ;  Hawley  v. 
Hunt,  27  Iowa,  303,  1  Am.  Rep.  273  ;  Bedell  v.  Scranton,  54  Vt.  493  ; 
Marsh  v.  Putnam,  3  Gray,  551.  These  cases,  however,  with  the  ex- 
ception of  Marsh  v.  Putnam,  3  Gray,  551,  are  not  in  point,  as  in  each 
of  them,  with  the  one  exception  stated,  the  only  matter  before  the 
court  for  decision  was  as  to  the  effect  of  a  discharge  in  insolvency  upon 
debts  held  by  non-residents  of  the  State  in  which  the  discharge  was 
granted,  the  creditor  not  having  proved  his  claim  in  the  insolvency 
proceedings,  nor  otherwise  participated  therein ;  and  it  was  with 
reference  to  this  question  that  it  was  said  in  those  cases  that  the  bind- 
ing effect  of  the  discharge  in  insolvency  then  before  the  court  depended 
upon  the  citizenship  of  the  parties,  and  not  upon  the  place  of  the 


60  LOWENBERG   V.   LEVINE.  [CHAP.  L 

contract.  Thus  in  the  case  of  Bedell  v.  Scranton,  54  Vt.  493,  it  is  said  : 
"The  debt  attends  the  person  of  the  creditor,  and  unless  he  is  within 
the  jurisdiction  of  the  court,  no  discharge  granted  by  it  can  affect  his 
rights.  It  is  a  question  of  citizenship,  and  State  courts  and  State  laws 
are  powerless  to  affect  the  rights  of  non-resident  creditors  by  any  juris- 
diction they  may  have  or  exercise  over  the  person  of  the  debtor,  or  by 
any  proceedings  in  rem  affecting  the  debt  itself."  So,  also,  in  Hawle}7 
v.  Hunt,  27  Iowa,  303,  1  Am.  Rep.  273,  the  only  matter  before  the 
court  was,  whether  a  discharge  in  insolvency  made  by  the  courts  of  one 
State  would  affect  non-residents  not  parties  to  it ;  and  in  holding  that 
it  would  not,  Dillon,  C.  J.,  in  delivering  the  opinion  of  the  court, 
used  this  language  :  "  I  have  said  that  the  settled  law  now  is,  that  a 
non-resident  and  non-assenting  creditor  is  not  bound  b}*  the  debtor's 
discharge  under  State  insolvent  laws,  no  matter  where  the  debt  origi- 
nated or  was  made  payable.  In  other  words,  the  citizenship  of  the 
parties  governs,  and  not  the  place  where  the  contract  was  made  or 
where  it  is  to  be  performed." 

There  can  be  no  doubt  of  the  correctness  of  this  proposition,  when 
considered  in  connection  with  the  question  which  the  court  had  before 
it.  Indeed,  it  is  only  the  statement  of  a  very  familiar  principle,  which 
is  not  at  all  peculiar  to  decrees  in  insolvency  proceedings,  that  no 
court  can  render  a  valid  personal  judgment  against  a  defendant,  or  one 
affecting  property  which  attends  or  follows  his  person,  without  first 
obtaining  jurisdiction  of  his  person.  But  the  rule  itself  has  no  applica- 
tion whatever  to  the  facts  of  this  case,  as  the  question  here  is,  not 
whether  the  Superior  Court,  when  it  made  the  decree  upon  which 
appellant  relies,  had  jurisdiction  over  the  person  of  respondent,  but 
whether  the  court  was  authorized  to  discharge,  by  its  decree  in  in- 
solvenc\r,  the  obligation  of  the  contract  made  in  another  State  or 
territory. 

Section  53  of  the  Insolvent  Act  of  this  State  declares:  "A  dis- 
charge, duty  granted  under  this  Act,  shall .  .  .  release  the  debtor  from 
all  claims,  debts,  liabilities,  and  demands  set  forth  in  his  schedule,  or 
which  were  or  might  have  been  proved  against  his  estate  in  insolvency." 
This  language  is  broad  enough  to  include  the  debt  sued  upon  in  this 
action  ;  but  if  the  State  is  without  authority  to  pass  an  insolvent  law 
affecting  the  obligations  of  contracts  made  without  the  State,  then  the 
general  terms  of  the  statute  must  be  restricted,  and  the  act  construed 
as  not  intended  to  affect  or  apply  to  them.  Danforth  v.  Robinson, 
80  Me.  466,  6  Am.  St.  Rep.  224.  So  that,  after  all,  the  real  question 
for  decision  in  this  case  is  as  to  the  power  of  the  State  to  enact  a  law 
having  the  effect  to  discharge  the  obligation  of  contracts  made  else- 
where, when  the  creditor  in  no  wise  participates  in  the  proceedings  in 
which  the  discharge  is  entered,  although  he  may  have  been  a  resident 
of  this  State  at  the  time  of  the  insolvency  proceedings.  This  precise 
question  came  before  the  Supreme  Court  of  New  York  in  the  case  of 
Witt  v.  Follett,  2  Wend.  457,  and  was  there  determined  in  the  nega- 


SECT.  II.]  LOWENBERG  V.   LEVINE.  61 

tive ;  and  such  seems  to  be  the  settled  doctrine  of  the  Supreme  Court 
of  the  United  States.  In  the  case  of  Cook  v.  Moffat,  5  How.  308, 
that  court,  while  conceding  the  authority  of  a  State  to  pass  an  insolvent 
law,  in  the  absence  of  a  law  of  Congress  establishing  a  uniform  S3'stem 
of  bankruptcy,  nevertheless,  held  that,  in  view  of  section  10  of  article  I. 
of  the  Constitution  of  the  United  States,  which  denies  to  a  State  the 
power  to  pass  any  law  impairing  the  obligation  of  contracts,  the  insol- 
vent law  of  a  State  "  could  have  no  effect  on  contracts  made  before 
their  enactment,  or  beyond  their  territory."  And  in  the  later  case  of 
Baldwin  v.  Hale,  1  Wall.  223,  that  court,  after  reviewing  the  previous 
cases  decided  by  it  as  to  the  effect  of  State  insolvent  laws,  takes  occa- 
sion to  again  state  upon  what  contracts  such  laws  cannot  operate,  and, 
in  so  doing,  uses  this  language:  "Undoubtedly  a  State  may  pass  a 
bankrupt  or  insolvent  law  under  the  conditions  before  mentioned,  and 
such  a  law  is  operative  and  binding  upon  the  citizens  of  the  State;  but 
we  repeat  what  the  court  said  in  Cook  v.  Moffat,  5  How.  308,  that 
such  laws  '  can  have  no  effect  on  contracts  made  before  their  enact- 
ment, or  beyond  their  territory.'" 

The  rule  upon  this  subject,  and  the  reason  upon  which  it  is  founded, 
is  thus  stated  in  section  1390  of  Story  on  the  Constitution,  as  the  result 
of  all  the  cases  :  "  The  question  is  now  understood  to  be  finally  at 
rest ;  the  State  insolvent  laws,  discharging  the  obligation  of  future 
contracts,  are  to  be  deemed  constitutional.  Still,  a  very  important 
point  remains  to  be  examined,  and  that  is,  to  what  contracts  such  laws 
can  rightfully  apply.  The  result  of  the  various  decisions  on  this  sub- 
ject is:  1.  That  they  apply  to  all  contracts  rnade  within  the  State 
between  citizens  of  the  State  ;  2.  That  they  do  not  apply  to  contracts 
made  within  the  State  between  a  citizen  of  a  State  and  a  citizen  of  an- 
other State;  3.  That  they  do  not  appty  to  contracts  not  made  within 
the  State.  In  all  these  cases  it  is  considered  that  the  State  does  not 
possess  a  jurisdiction  co-extensive  with  the  contract  over  the  parties, 
and  therefore  that  the  Constitution  of  the  United  States  protects  them 
from  prospective  as  well  as  retrospective  legislation.  Still,  however, 
if  a  creditor  voluntarily  makes  himself  a  part}'  to  the  proceedings  under 
an  insolvent  law  of  a  State  which  discharges  the  contract,  and  accepts 
a  dividend  declared  under  such  law,  he  will  be  bound  by  his  own  act, 
and  be  deemed  to  have  abandoned  this  extraterritorial  immunity." 

In  the  case  of  Marsh  v.  Putnam,  3  Gra}T,  551,  cited  and  relied  upon 
by  appellant,  a  contrary  rule  was  declared.  But  this  case  stands  alone, 
and,  in  our  opinion,  should  not  be  followed. 

The  plaintiff  not  having  in  an}-  manner  participated  in- the  insolvency 
proceedings  had  in  this  State,  and  relied  upon  as  a  bar,  and  the  judg- 
ment sued  upon  having  been  recovered  in  Montana  upon  a  contract 
made  there,  it  results  from  the  foregoing  views  that  the  plaintiff  is 
entitled  to  recover  in  this  action. 

Judgment  affirmed. 


62  LOTHROP  V.  HIGHLAND  FOUNDRY  CO.       [CHAP.  L 


LOTHROP  v.  HIGHLAND   FOUNDRY  COMPANY. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  OCTOBER  2,  1879- 
JANUARY  12,  1880. 

[Reported  in  128  Massachusetts,  120.] 

PETITION  in  equity  to  this  court,  under  the  Gen.  Sts.  c.  118,  §  16, 
to  stay  proceedings  in  which  the  court  of  insolvency  had  issued  a  war- 
rant against  an  insolvent  debtor  upon  the  petition  of  a  creditor,  which 
was  filed  September  16,  1878,  under  the  Gen.  Sts.  c.  118,  §  103,  and 
alleged  that  the  debtor  on  August  31,  1878,  made  two  mortgages  of 
his  personal  property  to  secure  the  pa3-ment  of  preexisting  debts  to  the 
mortgagees,  with  intent  to  secure  to  them  a  preference,  and  to  defraud 
his  creditors,  the  debtor  being  at  the  time  insolvent  and  having  reason- 
able cause  to  believe  himself  insolvent.  • 

The  petition  to  this  court  alleged  that  the  court  of  insolvency  had  no 
jurisdiction  of  the  case :  1st.  Because,  at  the  time  of  the  alleged 
making  of  the  mortgages,  the  insolvent  laws  of  Massachusetts  were 
not  in  force,  and  the  acts  complained  of  were  not  in  violation  of  any 
law  then  of  binding  force  in  this  Commonwealth.  2d.  Because  the 
original  petition  was  defective  in  not  setting  forth  that  either  of  the 
mortgagees  knew  or  had  reasonable  cause  to  believe  that  the  debtor  was 
insolvent  at  the  time  of  making  the  mortgages  to  them. 

The  petition  to  this  court  was  dismissed,  with  costs,  by  COLT,  J.  ; 
and  the  petitioner  appealed  to  the  full  court. 

T.   G.  Kent,  for  the  petitioner. 

H.  J.  Boardman  &  C.  Blodgett,  for  the  respondent. 

GRAY,  C.  J.  The  principal  question  in  this  case  is  whether  a  con- 
veyance by  wa}*  of  preference,  made  by  an  insolvent  debtor,  in  contra- 
vention of  the  provisions  of  the  insolvent  laws  of  the  Commonwealth, 
while  the  recent  bankrupt  act  of  the  United  States  was  in  force,  is  a 
sufficient  cause  for  instituting  proceedings  in  insolvency  against  the 
debtor  since  the  repeal  of  the  bankrupt  act.  This  question  appears  to 
us  to  be  substantially  determined  by  the  judgments  heretofore  deliv- 
ered by  this  court  as  to  the  effect  of  the  bankrupt  act  of  1841  upon  the 
insolvent  law  of  1838. 

The  first  insolvent  law  of  Massachusetts  was  passed  on  April  23, 
1838,  and  took  effect  on  August  1  of  the  same  year.  St.  1838,  c.  163, 
§  26.  The  United  States  bankrupt  act  of  1841  was  passed  on  August 
19,  1841,  and  took  effect  from  and  after  February  1,  1842.  U.  S.  St. 
August  19,  1841,  §  17.  By  the  St.  of  Massachusetts  of  1842,  c.  71,  it 
was  enacted  that  the  insolvent  law  of  1838  (except  the  provision  for 
discharging  attachments  by  giving  bond)  "shall  be  suspended  so  long 
as  the  bankrupt  law  of  the  United  States  shall  continue  in  force ;  pro- 
vided, that  nothing  in  this  act  contained  shall  affect  any  proceedings 
which  ma}'  be  pending  under  the  provisions  of  the  act  hereby  sus- 


SECT.  II.]  LOTHROP   V.   HIGHLAND   FOUNDRY   CO.  63 

pended,  when  this  act  shall  take  effect."  This  statute,  though  passed 
on  March  3,  yet,  as  it  did  not  expressly  prescribe  the  time  when  it 
should  go  into  operation,  did  not  take  effect  until  thirty  days  afterwards. 
Rev.  Sts.  c.  2,  §  5.  But  it  was  held  by  this  court  that  the  bankrupt 
act  of  1841,  by  its  own  force,  suspended  the  operation  of  all  State 
insolvent  laws  applicable  to  like  cases ;  and  therefore  that  proceedings 
in  insolvency  instituted  on  March  3,  1842  (while  that  bankrupt  act  was 
in  foroe,  though  before  the  St.  of  1842,  c.  71,  took  effect,  were  unau- 
thorized and  void,  if  the  debtor  and  his  property  were  subject  to  the 
operation  of  the  bankrupt  act,  although  no  proceedings  under  that  act 
had  been  had  against  him.  Griswold  v.  Pratt,  9  Met.  16. 

The  bankrupt  act  of  1841  was  repealed  bjT  act  of  Congress  of  March 
3,  1843.  This  court  held  that  an  attachment  made  while  the  bankrupt 
act  of  1841  was  in  force,  and  the  insolvent  law  of  1838  was  suspended, 
was  dissolved  by  an  assignment  of  the  debtor's  estate  under  the  insol- 
vent law  on  proceedings  instituted  after  the  repeal  of  the  bankrupt  act ; 
and  Chief  Justice  Shaw  said :  k'  The  insolvent  law,  during  its  suspen- 
sion, existed  to  many  purposes.  It  was  suspended  only  during  the 
existence  of  another  system  of  paramount  authorit}*,  designed  for  the 
accomplishment  of  the  same  purpose,  namely,  a  general  and  equal 
distribution  of  the  property.  When,  therefore,  the  operation  of  this 
suspending  law  ceased,  the  original  act  was  reinstated  in  active  opera- 
tion, and  took  effect  from  its  original  enactment."  Ward  v.  Proctor, 
7  Met.  318. 

In  Atkins  v.  Spear,  8  Met.  490,  it  was  contended  that  certain  trans- 
fers, assignments,  and  payments,  made  by  a  debtor  while  the  bankrupt 
act  of  1841  was  in  force  and  the  insolvent  law  suspended,  invalidated 
a  certificate  of  discharge  under  proceedings  in  insolvency  commenced 
after  the  repeal  of  the  bankrupt  act.  Mr.  Justice  Dewey,  in  deliver- 
ing the  judgment  of  the  court,  said  that,  upon  the  repeal  of  the  bank- 
rupt act,  "the  insolvent  law  of  Massachusetts  was  revived,  and  with 
its  revival  all  the  limitations  and  restrictions  upon  the  right  to  a  dis- 
charge revived,  although  the  acts  had  occurred  during  its  suspension  ;  " 
and  that  therefore,  if  the  alleged  acts  of  the  defendant  were  within  the 
cases  specified  in  the  insolvent  law  of  1838,  or  the  statutes  supple- 
mentary thereof,  as  avoiding  a  discharge,  then  they  would  have  that 
effect,  but  not  otherwise.  He  then  proceeded  to  examine  the  various 
acts  relied  on,  and  to  show  that  none  of  them  contravened  the  pro- 
visions of  the  insolvent  laws,  —  which  would  have  been  wholly  unneces- 
sary if  no  acts  whatever,  done  while  the  bankrupt  act  was  in  force  and 
the  insolvent  laws  suspended,  could  have  been  deemed  to  have  been 
prohibited  by  the  insolvent  laws. 

In  Austin  v.  Caverly,  10  Met.  332,  Chief  Justice  Shaw  referred  to 
Ward  v.  Proctor  and  Atkins  v.  Spear,  above  cited,  as  establishing  that, 
upon  the  repeal  of  the  bankrupt  act  of  1841,  "the  insolvent  law  of 
1838  went  into  renewed  and  active  operation,  to  be  construed  accord- 
ing to  the  terms  of  its  original  enactment." 


64  LOTHROP   V.   HIGHLAND   FOUNDRY   CO.  [CHAP.  L 

It  may  also  be  observed  that  fraudulent  conveyances  made  after 
the  bankrupt  act  of  1841  was  passed,  but  before  it  took  full  effect  so 
as  to  suspend  the  operation  of  State  insolvent  laws,  have  been  held  to 
afford  grounds  for  impeaching  a  certificate  of  discharge  obtained,  or  for 
allowing  the  property  conveyed  to  be  recovered  back  by  an  assignee 
appointed,  under  proceedings  in  bankruptcy  instituted  after  the  bank- 
rupt act  took  full  effect.  Swan  v.  Littlefield,  4  Gush.  574 ;  Day  v. 
Bardwell,  97  Mass.  246,  255,  and  cases  cited. 

The  recent  bankrupt  act  of  the  United  States  was  enacted  on  March 
2,  1867,  and  did  not  take  full  effect,  so  as  to  suspend  the  operation  of 
the  insolvent  laws  of  the  Commonwealth,  until  June  2,  1867. l  Day  v. 
Bardwell,  97  Mass.  246.  It  was  repealed  by  the  U.  S.  St.  of  June  7, 
1878,  which  took  effect  on  September  1,  1878.  The  omission  of  the 
legislature  of  the  Commonwealth  to  make  any  i-egulation  whatever  as 
to  the  suspension  or  the  revival  of  the  operation  of  the  insolvent  laws, 
b}*  reason  of  the  contemplated  or  the  actual  enactment  or  repeal  of 
the  last  bankrupt  act,  can  hardly  be  explained  on  any  other  hypothesis 
than  that  it  was  considered  to  be  settled  by  the  judgments  of  this  court, 
that  no  such  legislation  was  necessary,  either  to  suspend  the  operation 
of  the  insolvent  laws  so  long  as  the  bankrupt  act  continued  in  force, 
or  to  revive  the  operation  of  all  the  provisions  of  the  insolvent  laws, 
as  if  they  had  never  been  suspended,  so  soon  as  the  bankrupt  act  was 
repealed  ;  and  that  the  effect,  and  the  only  effect,  of  the  bankrupt  act 
upon  the  insolvent  laws  was  to  suspend,  so  long  as  it  was  in  force,  the 
right  to  institute  proceedings  under  those  laws  in  cases  within  its  pro- 
visions.2 In  view  of  the  course  of  legislative  action  and  of  judicial 

1  Martin  v.  Berry,  37  Cal.  208  ;  Chamberlain  v.  Perkins,  51  N.  H.  336  ;  Augsbury 
v.  Grossman,  10  Hun,  389,  ace.     Conf.  In  re  Langley,  1  B.  R.  559.     Similarly  under 
the  act  of  1841,  Larrabee  v.  Talbott,  5  Gill,  426. 

But  under  the  law  of  1898,  although,  as  iu  the  previous  act,  no  proceedings  could 
be  begun  for  some  time  after  the  passage  of  the  act,  yet  because  of  the  express  pro- 
vision of  the  final  paragraph,  "  This  act  shall  go  into  full  force  and  effect  upon  its 
passage,"  it  has  been  held  that  State  insolvency  laws  were  at  once  suspended  on 
July  1,  1898.  Re  Bruss-Ritter  Co.,  90  Fed.  Rep.  651  ;  In  re  Curtis,  91  Fed.  Rep.  737; 
Harbaugh  v.  Costello,  184  111.  110;  Parmenter  Mfg.  Co.  v.  Hamilton,  172  Mass.  178. 

Proceedings  begun  under  State  insolvency  laws  before  a  national  bankruptcy  act 
takes  effect  are  not  affected  by  it.  Martin  v.  Berry,  37  Cal.  208 ;  Meekins  v.  Creditors, 
19  La.  497;  Longis  v.  Creditors,  20  La.  An.  15;  Larrabee  v.  Talbot,  5  Gill.  426 ; 
Lavender  v.  Gosnell,  43  Md.  153 ;  Judd  v.  Ives,  4  Met.  401.  This  is  expressly  so  pro- 
vided in  the  closing  words  of  the  act  of  1898. 

2  Tua  v.  Carriere,  117  U.  S.  201  ;  Butler  v.  Gorely,  146  U.  S.  303.     Torrens  v. 
Hammond,  10  Fed.  Rep.  900 ;  Lavender  v.  Gosnell,  43  Md.  153,  ace. 

In  Maine  an  insolvent  law  was  passed  in  1878,  while  the  national  act  was  still  in 
force.  It  was  held  that  the  State  law  took  effect  on  the  repeal  of  the  national  act, 
and  applied  to  acts  done  while  the  national  act  was  in  force.  Palmer  v.  Hixon, 
74  Me.  447. 

In  Ex  parte  Ziegenfuss,  2  Ired.  463 ;  Maltbie  v.  Hotchkiss,  38  Conn.  80,  83 ;  and 
Reed  v.  Taylor,  32  la.  209,  it  was  held  that  State  laws  were  not  wholly  suspended  by  a 
national  act,  and  that  proceedings  might  be  had  under  a  State  law  until  the  jurisdic- 
tion of  the  Federal  court  had -been  called  into  exercise.  This  ground  of  decision 
is  clearly  wrong.  Carling  v.  Seymour  Lumber  Co.,  113  Fed.  483,  51  C.  C.  A.  1 ;  Re 


SECT.  II.]  LOTHROP   V.   HIGHLAND   FOUNDRY    CO.  65 

decision  on  the  subject,  it  would  be  most  unreasonable  to  conclude 
that  fraudulent  preferences  made  since  the  passage  of  the  insolvent 
laws  and  of  the  bankrupt  act  should  not  be  reached  by  the  provisions 
of  either. 

The  objection  that  the  petition  to  the  court  of  insolvency  is  defective 
for  want  of  an  allegation  that  the  mortgagees  knew  or  had  reasonable 
cause  to  believe  that  the  debtor  was  insolvent,  cannot  be  sustained. 
The  dicta  of  Chief  Justice  Shaw  in  Ex  parte  Jordan,  9  Met.  292,  on 
which  this  objection  is  founded,  were  unnecessary  to  the  decision  of 
that  case,  and  are  controlled  by  the  opinion  subsequently  delivered  by 
.him  in  Thompson  v.  Stone,  8  Gush.  103,  as  well  as  by  the  express  pro- 
vision of  the  St.  of  1856,  c.  284,  §  29,  which  the  Commissioners  on 
the  General  Statutes  indicate  no  purpose  to  abrogate.  The  difference 
in  the  language  of  the  different  sections  of  c.  118  of  the  Gen.  Sts. 
manifests  the  intention  of  the  legislature  that,  in  order  to  enable  the 
assignee  to  maintain  an  action  under  §  89  to  recover  back  the  property 
conveyed,  it  should  be  necessary  to  prove  knowledge  or  reasonable 
cause  to  believe,  on  the  part  of  those  receiving  or  benefited  bjr  the 
conveyance,  that  the  debtor  was  insolvent  or  in  contemplation  of  in- 
solvency at  the  time  of  making  it ;  but  that  the  liability  of  the  debtor 
to  proceedings  in  insolvency  under  §  103,  like  his  right  to  a  certificate 
of  discharge  under  §  87,  should  depend  solely  on  his  own  intent  and 
purpose  and  cause  of  belief,  or,  in  other  words,  upon  the  question 
whether  he,  and  not  upon  the  question  whether  smy  other  person,  has 
done  an  act  in  fraud  of  the  insolvent  laws.  And  the  petition  to  the 
court  of  insolvency  in  this  case  is  in  the  form  which  has  been  generally 
used  under  those  statutes.  See  Cutler's  Insolvent  Laws  (3d  ed.),  125  ; 
(4th  ed.)  193.  Decree  affirmed. 

Storck  Lumber  Co.,  114  Fed.  360 ;  Re  F.  A.  Hall,  121  Fed.  992  ;  Re  Weedman  Stave 
Co.,  199  Fed.  948  ;  Ex  parte  Eames,  2  Story  (U.  S.)  322  ;  Com.  v.  O'Hara,  1  N.  B.  R. 
87  ;  Thornhill  v.  Bank,  3  N.  B.  R.  435,  5  N.  B.  R.  367;  Ketcham  v.  McNamara,  72 
Conn.  709;  Harbaugh  r.  Costello,  184  111.  110;  Beach  v.  Miller's  Exrs.,  15  La.  Ann. 
601;  Duffy  v.  His  Creditors,  122  La.  600;  Moody  v.  Port  Clyde  Development  Co.,  102 
Me.  365;  Van  Nostrand  v.  Carr,  30  Md.  128;  Griswold  v.  Pratt,  9  Met.  (Mass.)  16; 
Lyman  v.  Bond,  130  Mass.  291;  Parmeuter  Mfg.  Co.  v.  Hamilton,  172  Mass.  178  J 
Rowe  v.  Page,  54  N.  H.  190;  E.  C.  Wescott  Co.  v.  Berry,  69  N.  H.  505;  Mauran  v. 
Crown  Carpet  Lining  Co.,  23  R.  I.  324. 

But  though  an  insolvent  law  is  entirely  suspended  as  such,  some  provisions  of  the 
statute  may  still  have  some  effect.  In  Re  Worcester  County,  102  Fed.  Rep.  808,  (it 
was  held  that  a  provision  of  the  Massachusetts  insolvent  law  giving  counties  priority 
entitled  them  to  priority  under  §  64  of  the  bankrupt  act  providing  for  priority  for 
debts  owing  to  persons  "  entitled  "  by  the  laws  of  the  State  to  priority. 


66  STEELMAN    V.   MATTIX.  [CHAP.  I. 


STEELMAN   v.   MATTIX. 

SUPREME  COURT  OF  NEW  JERSEY,  NOVEMBER  TERM,  1878. 
[Reported  in  36  New  Jersey  Law,  344.] 

VAN  SYCKEL,  J,  This  suit  was  instituted  upon  a  bond  executed  by 
Nathan  P.  Mattix  and  his  sureties,  under  the  second  section  of  the  act 
entitled,  "  An  act  abolishing  imprisonment  on  civil  process  in  certain 
cases."  Nix.  Dig.  386,  p.  9.  One  of  the  breaches  assigned  in  the 
declaration  is,  that  the  said  Mattix,  after  he  was  refused  his  discharge 
under  the  insolvent  laws  of  this  State,  did  not  surrender  himself  to  the 
sheriff,  out  of  whose  custody  he  had  been  liberated. 

To  this  declaration  there  is  a  general  demurrer,  upon  the  ground 
that  the  bond  is  void,  because  the  act  under  which  it  was  given  was 
superseded  or  suspended  by  the  national  bankrupt  law. 

It  is  admitted  that  the  authority  given  to  Congress  to  establish 
uniform  laws  on  the  subject  of  bankruptcy  does  not  restrict  the 
power  of  the  States  over  the  same  subject,  until  the  power  of  Congress 
is  actually  exercised. 

Whether  the  enactment  of  the  national  law  ipso  facto  nullifies  the 
operation  of  State  laws,  or  whether  proceedings  may  be  instituted  and 
continued  under  State  laws,  until  proceedings  are  actually  taken  under 
the  Federal  law,  are  questions  which  have  been  much  discussed,  but 
the}-  are  not  necessarily  involved  in  this  case,  and,  therefore,  no 
opinion  will  be  expressed  in  regard  to  them. 

The  subject  is  divisible  into  bankrupt  and  insolvent  laws,  but  the 
difficult}'  of  defining  with  accuracy  what  belongs  to  the  one  and  not 
to  the  other  class  is  recognized  in  the  principal  case.  Sturges  v. 
Crowninshield,  4  Wheat.  122. 

The  line  of  separation  may  be  an  arbitrary  one,  and  without  attempt- 
ing to  establish  an}'  rule  by  which  laws  of  this  character  may  be  classi- 
fied, it  will  be  sufficient  if  we  can  say  with  confidence  that  the  act  now 
in  question  is  so  far  removed  from  the  line  of  demarcation  that  its 
character  is  not  doubtful. 

It  is  an  act  to  abolish  imprisonment  on  civil  process  in  certain  cases. 
It  applies  to  the  single  instance  of  involuntary  confinement,  and  its  aim 
and  purpose  is  simply  to  liberate  the  person.  It  has  neither  the  scope, 
nor  does  it  subserve  the  end  of  a  bankrupt  law.  The  person  who  in- 
vokes its  aid  must  not  necessarily  be  bankrupt  or  insolvent  —  he  need 
only  be  incarcerated  on  civil  process  against  his  will. 

It  is  true  that  his  property  is  sequestered  and  distributed  among  his 
creditors,  but  so  it  is  under  the  attachment  act,  the  assignment  act, 
and  the  act  applying  to  the  estates  of  decedents  ;  the  distribution  of 
the  property  is  merely  incidental,  and  does  not  discharge  the  debt. 
This  was  not  a  proceeding  in  bankruptcy,  and  would  no  more  come  in 


SECT.  II.]  STEELMAN   V.   MATTIX.  67 

conflict  with  the  law  of  Congress  than  a  suit  prosecuted  to  judgment 
and  execution  ;  in  either  case  the  assignee  in  bankruptcj'  would  take 
the  debtor's  property  out  of  the  control  of  the  State  court.  The  power 
given  to  Congress  over  this  subject  is  plenaiy,  and  when  it  has  been 
exercised,  all  State  legislation,  and  all  proceedings  in  State  courts, 
which  actually  come  in  conflict  with  it,  must  yield  to  the  paramount 
authority  of  the  general  government.  It  would  seem  necessarily  to 
result,  that  when  Congress  has  constitutional!}1  passed  a  law  upon  this 
subject,  State  law,  designed  to  accomplish  substantially  the  same 
purpose,  must  fall. 

Uniformity  cannot  exist  with  jurisdiction  in  the  State  and  federal 
courts  in  operation  at  the  same  time  over  the  same  subject-matter,  to 
secure  substantially  the  same  result. 

The  fact  that  under  certain  conditions  the  State  courts  are  vested 
with  authority  to  control  and  administer  the  debtor's  property  for  the 
benefit  of  creditors,  is  not,  of  itself,  conclusive  as  to  the  vitality  of  the 
State  law. 

It  is  held  that  a  State  insolvent  law,  which  supplies  the  mode  of 
administering' insolvent  estates  under  such  assignments  made  by 
debtors  for  the  benefit  of  creditors  as  would  be  valid  at  common  law, 
without  the  aid  of  any  statute,  and  which  could  be  enforced  by  a  court 
of  equit}'  like  any  other  trust,  is  not  suspended.  Hawkins'  Appeal,  8 
Am.  L.  R.  205  ;  Beck  v.  Parker,  65  Penn.  262. 

So  when  a  bankrupt  act  expressl}'  excepts  a  class  of  cases,  it  must 
have  been  the  intention  of  Congress  not  to  interfere  in  such  specified 
class  with  the  laws  of  the  several  States.  In  re  Wintermitz,  18  Pitts- 
burgh L.  J.  61. 

This  recognizes  the  corollary  that  in  a  case  not  provided  for  by  the 
national  authority,  the  force  of  State  legislation  is  undisturbed,  for  no 
conflict  can  possibly  arise  between  the  two  jurisdictions. 

Our  State  law  in  question  is  of  this  class,  where  a  debtor,  prior  to 
the  institution  of  proceedings  in  bankruptc}',  is  imprisoned  on  civil 
process  issued  out  of  the  State  court,  the  federal  law  furnishes 
no  means  of  discharging  him  from  confinement,  and  therefore,  if  this 
State  law  is  held  to  be  suspended,  the  prisoner  is  without  relief,  and 
subject  to  lifelong  incarceration.  When  the  federal  law  is  put  into 
actual  operation,  the  superior  title  of  the  assignee  in  bankruptcy  to 
the  property  of  the  debtor  would  assert  itself  in  the  same  way,  that 
it  would  prevail  over  the  title  of  the  sheriff  acquired  by  virtue  of  his 
executions,  in  certain  specified  cases.1 

1  The  Poor  Debtor  laws  of  Massachusetts  continued  to  he  enforced  during  the  exist- 
ence of  the  bankruptcy  act  of  1867,  and  the  provisions  for  imprisonment  of  the  debtor 
in  case  of  fraud  were  held  unaffected  by  the  provision  of  the  national  act  that  "  no 
bankrupt  should  he  liable  to  arrest  during  the  pendency  of  the  proceedings  in  bank- 
ruptcy in  any  civil  action  unless  the  same  is  founded  on  some  debt  or  claim  from  which 
his  discharge  would  not  release  him."  Stockwell  v.  Silloway,  100  Mass.  287,  105  Mass. 
517.  Similarly  in  Pennsylvania,  Scully  v.  Kirkpatrick,  79  Pa.  324. 

A  law  giying  a  creditor  a  right  to  prevent  his  debtor  from  leaving  the  Stat« 


68  HAWKINS   V.   LEARNED.  [CHAP.  I 

But  if  our  insolvent  laws  shall  be  regarded  as  bankrupt  laws,  and  it 
is  held  that  they  are  superseded  or  suspended,  the  act  under  which  this 
bond  is  given  is  still  in  full  force,  and  the  bond  is  obligatory.  Under 
that  construction,  it  may  be  questioned  whether,  while  the  act  of  April 
15th,  1856,  remains  upon  our  statute  book,  the  sheriff  could  refuse  to 
accept  the  bond.  The  condition  is,  that  the  debtor  shall  apply  for  the 
benefit  of  the  insolvent  laws  of  this  State,  and  if  he  fails  to  be  dis- 
charged, shall  surrender  himself  to  the  officer.  The  undertaking  is 
in  the  alternative,  either  to  obtain  a  discharge  under  a  law  which  is 
no  longer  effective,  or  to  return  to  the  condition  from  which  he  was 
released.  Failing  in  the  former,  he  must  perform  the  latter ;  this 
obligation  is  neither  to  do  that  which  is  unlawful  or  impossible.  When 
application  is  made  to  the  State  court  for  a  discharge,  the  debtor  would 
be  remanded  to  custody,  either  because  he  did  not  compty  with  the 
provisions  of  the  State  law,  or  for  the  reason  that  the  State  court  had 
no  power  in  the  premises. 

As  the  pleadings  stand,  the  defendant  has  failed  to  comply  with  the 
condition  of  his  bond,  and  the  demurrer,  therefore,  should  be  overruled, 
with  costs.1 


HAWKINS  v.  LEARNED. 
SUPREME  JUDICIAL  COURT  OF  NEW  HAMPSHIRE,  JUNE  TEEM,  1874. 

[Reported  in  54  New  Hampshire,  333.] 

SARGENT,  C.  J.  The  motion  to  dismiss  in  this  case  is  founded 
upon  Gen.  Stats.,  c.  167,  §10,  as  follows:  "When,  upon  repre- 
sentation of  the  guardian  of  any  insane  person  or  spendthrift,  the 
judge  is  satisfied  that  estate  of  the  ward  is  not  sufficient  to  discharge 
the  just  debts  due  therefrom,  he  may  decree  that  said  estate  be  set- 
remained  in  force  concurrently  with  a  national  act.  Gollschalk  v.  Meyer,  28  La.  An. 
885. 

An  assignment  made  under  insolvent  laws  of  Pennsylvania,  the  object  of  these  laws 
being  to  discharge  the  debtor  from  liability  to  imprisonment  only,  was  held  valid 
though  the  debtor  was  subsequently  adjudicated  a  bankrupt  under  the  national  act 
of  1841.  Sullivan  v.  Hieskill,  Crabbe,  525.  See  also  Ex  parts  Eank,  Crabbe,  493, 
and  conf.  Barber  v.  Kodgers  71  Pa.  362.  So,  under  a  similar  statute  in  New  York, 
Berthelon  v.  Betts,  4  Hill,  577.  See  also  Shears  v.  Solhinger,  10  Abbott's  Prac.  N.  s. 
287.  In  Rhode  Island  the  law  for  the  relief  of  poor  debtors  was  held  to  continue  in 
force  after  the  passage  of  a  national  act :  Jordan  v.  Hale,  9  R.  I.  218 ;  but  the  insolvent 
law  was  held  to  be  suspended,  though  the  debtor  was  not  by  its  terms  discharged  from 
his  debts,  and  the  only  material  difference  between  it  and  the  law  for  the  relief  of 
poor  debtors  was  that  the  former  relieved  the  debtor  from  liability  to  arrest  for  any 
of  his  debts  while  the  latter  only  relieved  him  from  liability  to  arrest  for  a  particular 
debt.  In  the  matter  of  Reynolds,  8  R.  I.  485.  This  decision  seems,  however,  some- 
what discredited  by  Jordan  v.  Hale,  9  R.  I.  218,  222. 

i  Conf.  Barber  v.  Rodgers,  71  Pa.  362. 


SECT.  II.]  HAWKINS   V.   LEARNED.  69 

tied  as  insolvent,  and  thereupon  such  proceedings  shall  be  had,  decrees 
made,  appeals  allowed,  suits  disposed  of,  and  the  accounts  of  the  guar- 
dian adjusted,  as' in  the  case  of  insolvent  estates  of  deceased  persons." 

In  this  case,  it  is  agreed  that  the  defendant  was  duly  decreed  to  be 
an  insane  person  by  the  Probate  Court,  and  a  guardian  was  appointed. 
The  guardian  made  the  proper  representation  to  the  Probate  Court,  and 
the  defendant's  estate  was  thereupon  decreed  to  be  administered  as 
insolvent ;  and  after  this,  at  this  term,  the  guardian  appears  and  moves 
that  this  action,  which  was  commenced  October  24,  1873,  be  dismissed 
in  consequence  of  such  proceedings  in  the  Probate  Court. 

This  is  the  same  way  a  suit  would  be  disposed  of  in  case  of  a  deceased 
person  whose  estate  was  decreed  to  be  administered  as  insolvent.  No 
action  shall  be  commenced  or  prosecuted  against  an  administrator  after 
the  estate  is  decreed  to  be  administered  as  insolvent,  but  the  cause  of 
action  may  be  presented  to  the  commissioner  and  allowed,  with  the 
costs  of  any  action  pending  at  the  time  of  such  decree  —  Gen.  Stats., 
c.  179,  §  8;  and  in  such  cases  no  plea  is  necessary  setting  forth  the 
decease  or  the  insolvency.  When  the  facts  are  suggested,  and  the 
court  is  satisfied  that  such  decrees  have  been  made  in  the  court  of  pro- 
bate, the  actions  are  discontinued  in  this  court  at  once. 

It  is  urged  in  argument  that  the  plaintiffs  should  be  heard  upon  the 
question  whether  the  party  is  insane,  etc.,  but  that  could  not  be  in 
this  court.  The  Probate  Court  is  the  tribunal  selected  by  law  to  settle 
that  question  ;  and,  when  once  settled  there,  it  is  settled  for  all  other 
places  and  all  other  courts.  This  must  be  so  from  the  nature  of  the 
case.  If  it  were  not  so,  the  same  man  might  be  held  both  sane  and 
insane  at  the  same  time.  The  case  of  Jones  v.  Jones,  45  N.  H.  123,  is 
directly  in  point,  under  provisions  of  the  statute  precisely  like  the 
present,  and  must  control  this  case. 

The  authorities  cited,  that  the  general  bankrupt  law  of  the  United 
States  supersedes  all  State  insolvent  laws,  do  not  apply.  The  laws  for 
the  settlement  of  the  estates  of  deceased  persons,  though  the}'  may 
provide  for  settling  estates  in  the  insolvent  course,  yet  are  not  re- 
garded as  general  insolvent  laws.  It  would  not  be  claimed,  probably, 
that  the  statute  for  the  settlement  of  the  estates  of  deceased  persons  in 
the  insolvent  course  was  superseded  by  the  general  bankrupt  law ;  and 
if  not,  then  this  would  not  be,  because  this  statute  provides  for  settling 
the  estates  of  insane  persons  in  all  respects  like  the  settling  of  the 
estates  of  persons  deceased. 

The  motion  to  dismiss  must  be  granted. 


70  EBERSOLE  AND  MCCARTY  V.  ADAMS,  ETC.      [CHAP.  I. 


EBERSOLE   &   McCARTY  v.   ADAMS,   &c. 
COURT  OF  APPEALS  OF  KENTUCKY,   WINTER  TERM,  1873. 

[Reported  in  10  Bush,  83.] 

JUDGE  LINDSAY  delivered  the  opinion  of  the  court. 

The  petition  in  this  action  was  framed  under  the  provisions  of  the 
act  approved  March  10,  1856,  entitled  "An  act  to  prevent  fraudulent 
assignments  in  trust  for  creditors  and  other  fraudulent  conve3'ances." 
It  is  alleged  that  the  conveyance  from  Adams  and  wife  to  Kirk  was 
made  and  executed  in  contemplation  of  insolvency,  and  with  the  design 
to  prefer  one  or  more  creditors  to  the  exclusion  in  whole  or  in  part  of 
others  ;  and  under  the  general  prayer  for  relief  the  court  is  authorized 
to  declare  that  said  conve}"ance  operated  as  an  assignment  and  transfer 
by  Adams  of  all  his  property  and  effects  for  the  benefit  of  all  his  cred- 
itors, to  take  possession  of  such  property  and  effects,  and  make  dis- 
tribution among  the  creditors  as  directed  by  said  act. 

To  the  petition  appellees  demurred,  upon  the  ground  that  the  act  of 
1856  is  "  a  State  system  of  bankruptcj*,"  .  .  .  and  that  it  was  "  super- 
seded and  in  effect  repealed  03-  the  act  of  Congress  of  the  United  States, 
passed  in  pursuance  of  express  constitutional  power,  entitled  "An  act 
to  establish  a  uniform  system  of  bankruptcy  throughout  the  United 
States,"  approved  March  2,  1867. 

The  demurrer  was  sustained,  a  personal  judgment  rendered  against 
the  debtor  Adams,  and  the  petition  to  the  extent  that  relief  was  asked 
against  Kirk,  under  the  provisions  of  the  act  of  1856  dismissed. 

This  act  is  not  a  bankrupt  law  nor  an  insolvent  act.  It  has  none  of 
the  characteristics  of  either,  except  that  it  provides  for  the  appropria- 
tion of  the  property  of  the  debtor  to  the  payment  pro  tanto  of  all  his 
creditors. 

An  assignment  or  transfer  made  in  contemplatiom  of  insolvency, 
and  to  prefer  creditors,  is  an  act  of  bankruptcy  under  the  act  of  Con- 
gress ;  but  this  fact  does  not  deprive  creditors  of  the  right  to  apply  to 
the  State  courts  for  relief,  in  case  they  choose  to  do  so.  Notwithstand- 
ing the  Federal  Bankrupt  Act,  the  State  courts  have  full  and  complete 
power  to  relieve  against  all  frauds,  actual  or  constructive,  except  in 
cases  in  which  a  court  of  bankruptcy  has  first  taken  jurisdiction,  or 
where  the  relief  asked  in  the  State  courts  is  subversive  of  the  rights  of 
parties  to  a  pending  proceeding  in  bankruptc}'  subsequently  instituted. 

If  the  act  of  1856  be  regarded  as  a  State  bankrupt  law,  there  is  still 
no  reason  why  the  Circuit  Court  should  not  enforce  it. 

State  legislatures  have  the  power  to  pass  bankrupt  or  insolvent  laws, 
provided  there  be  no  act  of  Congress  in  force  establishing  a  uniform 
system  of  bankruptcy  conflicting  with  such  law.  It  was  so  held  by 
Mr.  Justice  Johnson  of  the  Supreme  Court  in  the  case  of  Ogden  v. 
Saunders,  12  Wheat.  273.  And  in  the  subsequent  case  of  Bo3"le  v. 


SECT.  II.]  EBERSOLE   AND    MCCARTY   V.   ADAMS,   ETC.  71 

Zacharie,  6  Pet.  348,  Chief  Justice  Marshall  stated  that  "  the 
judges  who  were  in  the  minority  of  the  court  upon  the  general  ques- 
tion as  to  the  constitutionality  of  State  insolvent  laws,'  concurred  in 
the  opinion  of  Mr.  Justice  Johnson  in  the  case  of  Ogden  v  Saunders," 
and  hence  that  that  opinion  was  therefore  to  be  considered  as  no  longer 
leaving  the  question  open  for  controvers}'.  The  binding  force  of  this 
decision  was  again  recognized  by  the  Supreme  Court  in  the  case  of 
Baldwin  v.  Hale,  1  Wall.  223.  Judge  Cooley,  after  reviewing  all 
the  cases  bearing  upon  this  subject,  states  the  settled  law  to  be  that 
"  the  several  states  have  power  to  legislate  on  the  subject  of  bankrupt 
and  insolvent  laws,  subject,  however,  to  the  authority  conferred  upon 
Congress  by  the  Constitution  to  adopt  a  uniform  system  of  bankruptcy, 
which  authority,  when  exercised,  is  permanent,  and  State  enactments 
in  conflict  with  those  of  Congress  upon  the  subject  must  give  way." 

The  State  law  under  consideration  does  not  conflict  with  the  law  of 
Congress.  Except  to  the  extent  that  the  distribution  by  the  State  court 
of  the  assets  of  the  debtor's  estate  relieves  him  from  liability  to  his 
creditors,  his  obligation  and  the  right  of  the  creditors  still  to  look  to 
him  and  to  his  future  acquisitions  for  such  amounts  as  may  remain 
unpaid  continue  unimpaired. 

All  the  creditors  may  make  themselves  parties  to  the  proceeding  in 
the  State  court,  and  the  assets  of  the  debtor  are  marshalled  and  dis- 
tributed substantially  in  the  same  manner  as  the  act  of  Congress  pro- 
vides shall  be  done  in  a  proceeding  in  bankruptcy. 

The  State  law  being  in  every  essential  consistent  with  the  act  of 
Congress,  there  is  no  reason  why  the  latter  act  shall  be  regarded  as 
superseding  or  repealing  the  former.  The  court  below  erred  in  sus- 
taining the  demurrer,  and  in  dismissing  appellants'  petition. 

The  judgment  is  reversed,  and  the  cause  remanded  with  instructions 
to  overrule  the  demurrer,  and  for  further  proceedings  consistent  with 
this  opinion. 

The  appeal  is  dismissed  as  to  Mrs.  Adams,  it  not  appearing  that 
appellants  have  any  claim  against  her,  and  no  reason  being  shown  for 
making  her  a  party  either  to  the  proceedings  in  the  Circuit  Court  or  to 
this  appeal.1 

1  Lintliicum  v.  Fenley,  11  Bash,  131  ;  Downer  v.  Porter,  25  Ky.  L.  Rep.  571,  76  S. 
W.  135,  ace.;  Tobin  v.  Trump,  3  Brewst.  288;  Potts  v.  Smith  Mfg.  Co.,  25  Pa.  Super. 
Ct.  206 ;  Peckham's  Assigned  Est.,  35  Pa.  Super.  Ct.  330,  contra.  In  Alabama,  Con- 
necticut, New  Mexico,  Pennsylvania,  Tennessee,  West  Virginia,  Wisconsin,  as  well  as 
in  Kentucky,  there  are  state  statutes  providing  that  an  assignment  with  preferences 
by  an  insolvent  debtor  shall  operate  as  an  assignment  of  all  his  property  for  distri- 
bution ratably  among  his  creditors. 


72  SHEPARDSON'S  APPEAL.  [CHAP.  i. 


EDWARD   M.    SHEPARDSON'S   APPEAL   FROM   PROBATE. 


'  CONNECTICUT  SUPREME  COURT,  FEBRUARY  TERM,  1869. 

°°  [Reported  in  36  Connecticut,  23.] 

CARPENTER,  J.  Proceedings  were  instituted  against  the  appellant 
under  the  insolvent  laws  of  this  State,  and  thereupon  a  trustee  was 
appointed  by  the  court  of  probate.  From  that  decree  an  appeal  was 
taken,  and  the  Superior  Court  affirmed  the  decree.  The  appellant  now 
seeks  to  reverse  that  judgment  by  motion  in  error. 

The  objection  to  the  validit}*  of  that  decree  is  based  upon  the  claim 
that  the  statute  authorizing  it  had  been  superseded  by  the  operation  of 
the  bankrupt  act  of  the  United  States,  then  and  now  in  force.  That 
act  applies  only  to  cases  where  the  debtor  is  owing  debts  provable 
under  the  act  "exceeding  the  amount  of  three  hundred  dollars." 
Sections  11  and  39  of  the  act.  It  does  not  appear  in  this  case  that  the 
debts  of  the  appellant  exceed  that  amount.  The  case  therefore  does 
not  appear  to  be  within  the  purview  of  the  act  of  Congress. 

We  have  no  occasion  to  presume  either  that  the  debts  are  more  or 
less  than  that  amount.  If  less,  it  is  clear  that  the  law,  so  far  as  it 
respects  this  case,  is  unaffected  by  the  bankrupt  act. 

Before  we  can  hold  that  the  proceedings  are  erroneous,  it  ought  to 
appear  affirmatively  that  the}*  are  more.  Until  then  there  is  no  conflict 
of  laws.  The  State  law  is  operative  to  some  extent  and  for  some  pur- 
poses. It  is  clearl}'  operative  in  all  cases  which  are  not  within  the 
provisions  of  the  United  States  law.  So  far  as  appears  this  is,  or  may 
be,  a  case  of  that  description.  "We  therefore  see  no  error  in  the  judg- 
ment complained  of. 

In  this  opinion  HINMAN,  C.  J.,  and  BUTLER.  J.,  concurred. 

PARK,  J.  The  record  does  not  disclose  whether  or  not  the  insolvent 
owes  debts  in  the  aggregate  to  an  amount  less  than  the  sum  of  three 
hundred  dollars.  If  he  owes  more  than  that  amount,  the  majority  of 
the  court  concede  that  the  Probate  Court  had  no  jurisdiction  of  the  case, 
for  the  bankrupt  act  suspends  the  insolvent  act  in  cases  of  involuntary 
insolvency,  where  the  insolvent  owes  debts  more  in  the  aggregate  than 
that  amount.  The  question  then  is  one  of  jurisdiction  ;  and  the  record 
leaves  it  in  doubt  whether  or  not  the  Probate  Court  had  jurisdiction. 
Now  it  has  repeatedly  been  held  by  this  court  that  the  jurisdiction  of 
a  probate  court  must  affirmatively  appear  and  that  no  presumption 
exists  in  its  favor. 

In  the  case  of  Potwine's  Appeal  from  Probate,  31  Conn.  R.,  381, 
Judge  Butler  says:  "Courts  of  probate  have  a  special  and  limited 
jurisdiction.  Their  proceedings  cannot  be  sustained  by  presumption, 
and  their  records  must  show  an  explicit  finding  of  all  necessary  juris- 


SECT.  II.]  MAYER   V.   HELLMAN.  73 

dictional  facts."     The  following  cases  are  to  the  same  effect     Coit  v. 
Havens,  30  Conn.  R.,  190  ;  Sears  v.  Terry,  26  Conn.  R.,  273. 
I  cannot  agree  with  the  majority  of  the  court  on  this  question.1 


MAYER  ET   AL   v.   HELLMAN. 

SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  TERM,  1875. 
[Reported  in  91  United  States,  496.] 

ERROR  to  the  Circuit  Court  of  the  United  States  for  the  Southern 
District  of  Ohio. 

The  plaintiff  in  the  court  below  is  assignee  in  bankruptcy  of  Bogen 
and  others,  appointed  in  proceedings  instituted  against  them  iu  the 
District  Court  of  the  United  States  for  the  Southern  District  of  Ohio  ; 
the  defendants  are  assignees  of  the  same  parties,  under  the  assignment 
law  of  the  State  of  Ohio ;  and  the  present  suit  is  brought  to  obtain 
possession  of  property  which  passed  to  the  latter  under  the  assignment 
to  them.  The  facts  as  disclosed  by  the  record,  so  far  as  they  are  ma- 
terial for  the  disposition  of  the  case,  are  briefly  these :  On  the  3d  of 
December,  1873,  at  Cincinnati,  Ohio,  George  Bogen  and  Jacob  Bogen, 
composing  the  firm  of  G.  &.  J.  Bogen,  and  the  same  parties  with 
Henry  Milller,  composing  the  firm  of  Bogen  &  Son,  by  deed  exe- 
cuted of  that  date,  individually  and  as  partners,  assigned  certain  prop- 
erty held  by  them,  including  that  in  controversy,  to  three  trustees,  in 
trust  for  the  equal  and  common  benefit  of  all  their  creditors.  The 
deed  was  delivered  upon  its  execution,  and  the  property  taken  posses- 
sion of  by  the  assignees. 

By  the  law  of  Ohio,  in  force  at  the  time,  when  an  assignment  of 
propert}'  is  made  to  trustees  for  the  benefit  of  creditors,  it  is  the  duty 
of  the  trustees,  within  ten  days  after  the  delivery  of  the  assignment  to 
them,  and  before  disposing  of  any  of  the  property,  to  appear  before 

1  It  has  been  held  that  a  State  bankrupt  law  is  still  operative  as  to  farmers,  and 
wage-earners,  Old  Town  Bank  v.  McCormick,  96  Md.  341,  Re  Rittenhouse's  Insolvent 
Estate,  20  Pa.  Super.  Ct.  468;  Citizens'  Nat.  Bank  v.  Gass,  29  Pa.  Super.  Ct.  125; 
Miller  v.  Jackson,  34  Pa.  Super.  Ct.  31.  Also  to  mining  corporations  prior  to  the 
amendment  of  the  National  Act  in  1903.  R.  H.  Herron  Co.  v.  Superior  Court,  136 
Cal  279.  And  that  corporations  might  bring  voluntary  proceedings  under  a  State  law 
though  not  permitted  at  the  time  to  do  so  under  the  National  Act.  Keystone  Driller 
Co.  v.  Superior  Court,  138  Cal.  738.  In  Geery's  Appeal,  48  Conn.  289;  Clarke  v. 
Ray,  1  H.  &  J  318,  320;  Simpson  v.  City  Sav.  Bank,  56  N.  H.  466;  Singer  v.  Nat. 
Bedstead  Co.,  65  N.  J.  Eq.  290,  the  court  also  intimated  that  as  to  cases  of  bankruptcy 
or  insolvency  not  covered  by  the  National  Act,  the  State  legislature  might  deal  as  it 
saw  fit.  On  the  other  hand,  tending  to  show  that  the  national  excludes  the  power  of 
the  State  legislature  to  deal  with  any  case  of  bankruptcy,  see  Rockville  Nat.  Bank 
v.  Latham  (Conn.)  89  Atl.  1117;  Ketcham  v.  McNamara,  72  Conn.  709;  Harbaugh 
v.  Costello,  184  111.  110;  Moody  v.  Port  Clyde  Development  Co.,  102  Me.  365,  383; 
Pannenter  Mfg.  Co.  >•.  Hamilton,  172  Mass.  178. 


74  MAYER   V.   HELLMAN.  [CHAP.  I 

the  probate  judge  of  the  county  in  which  the  assignors  reside,  produce 
the  original  assignment,  or  a  copy  thereof,  and  file  the  same  in  the 
Probate  Court,  and  enter  into  an  undertaking  payable  to  the  State,  in 
such  sum  and  with  such  sureties  as  may  be  approved  by  the  judge, 
conditioned  for  the  faithful  performance  of  their  duties. 

In  conformity  with  this  law,  the  trustees,  on  the  13th  of  December, 
1873,  within  the  prescribed  ten  days,  appeared  before  the  probate 
judge  of  the  proper  county  in  Ohio,  produced  the  original  assignment, 
and  filed  the  same  in  the  Probate  Court.  One  of  the  trustees  havino1 

O 

declined  to  act,  another  one  was  named  in  his  place  by  the  creditors, 
and  appointed  by  the  court.  Subsequently  the  three  gave  an  under- 
taking with  sureties  approved  by  the  judge,  in  the  sum  of  $500,000, 
for  the  performance  of  their  duties,  and  then  proceeded  with  the 
administration  of  the  trust  under  the  direction  of  the  court. 

On  the  22d  of  June  of  the  following  year,  more  than  six  months 
after  the  execution  of  the  assignment,  the  petition  in  bankruptcy 
against  .the  insolvents  was  filed  in  the  District  Court  of  the  United 
States,  initiating  the  proceedings  in  which  the  plaintiff  was  appointed 
their  assignee  in  bankruptcy.  As  such  officer,  he  claims  a  right  to  the 
possession  of  the  property  in  the  hands  of  the  defendants  under  the 
assignment  to  them.  Judgment  having  been  rendered  against  them, 
they  sued  out  this  writ  of  error. 

Mr.  W.  T.  Forrest,  for  the  plaintiffs  in  error. 

Deeds  of  trust  or  assignments  made  in  good  faith,  and  for  the  com- 
mon benefit  of  all  the  creditors  of  a  debtor,  are  in  aid  of  the  provisions 
of  the  Bankrupt  Law,  and  not  contrary  te  its  spirit.  They  have  been 
said,  "  to  carry  out  the  equitable  provisions  of  a  bankrupt  law  through 
the  medium  of  a  private  contract,"  and  are  a  cheap,  expeditious,  and 
convenient  mode  of  arriving  at  the  objects  intended  by  that  law.  Sedg- 
wick  v.  Place,  1  Nat.  Bank.  Reg.  204  ;  Tiffany  v.  Lucas,  15  Wall.  410  ; 
Clark  v.  Iselin,  21  Wall.  360 ;  Michael  v.  Post,  id.  398;  Langley  v. 
Perry,  2  Nat.  Bank.  Reg.  180.  The  statute  of  Ohio,  entitled  "  An  Act 
regulating  the  mode  of  administering  assignments  in  trust  for  the  benefit 
of  creditors,"  has  none  of  the  distinctive  features  of  an  insolvent  or  a 
bankrupt  law.  It  does  not  purport  or  attempt  to  discharge  the  debtor 
either  from  arrest  or  imprisonment,  or  to  free  him  from  future  liability. 
His  after-acquired  property  is  liable  to  his  creditors  to  the  same  extent 
in  every  particular  as  if  he  had  not  made  an  assignment  in  trust  for  his 
creditors.  Deeds  of  trust  are  not  the  creatures  of  that  law.  They 
existed  in  Ohio,  and  were  constantly  recognized  and  used  for  fifty 
years  before  it  was  passed.  They  derive  their  force  and  effect  from 
the  common  law,  and  not  from  the  statute.  The  statute  does  not  give 
such  deeds  any  power  or  validity.  All  it  does  is  to  prescribe  a  mode 
of  enforcing  the  trust.  It  found  them  already  established,  and  simply 
provided  for  the  better  security  of  the  creditor  b}T  requiring  that  the 
trustees  should  give  bond  for  the  faithful  discharge  of  their  trusts,  and 
should  file  statements  showing  what  had  been  done,  and  provided  a 


SECT.  II.  J  MAYER   V.   HELLMAN.  75 

simple  and  speedy  means  of  enforcing  and  regulating  the  trust,  which, 
before  that  act  was  passed,  had  to  be  sought  through  a  court  of  chan- 
cery. Cook  et  al  v.  Rogers,  Am.  Law  Reg.  Juty,  1875,  453 ;  In  re 
Hawkins,  2  Nat.  Bank.  Reg.  122. 

Mr.  Adam  A..  Kramer,  contra. 

The  main  question  involved  in  this  case  is,  whether  the  adjudication 
in  Bankrupt  had  the  effect  of  suspending  the  further  operation  of  the 
State  assignment  laws.  The  jurisdiction  of  the  United  States  courts 
under  the  Bankruptcy  Act  cannot  be  concurrent  with  that  of  the  State 
courts  under  the  assignment  laws  of  the  State.  It  must  be  exclusive 
in  that  court,  which  only  can  and  should  administer  the  estate  and  ad- 
just the  affairs  of  a  bankrupt.  Sturges  v.  Crowninshield,  4  Wheat. 
122;  Ogden  v.  Saunders,  12  Wheat.  213,  214;  Griswold  v.  Pratt, 
9  Met;  Larrabee  v.  Talbot,  5  Gill,  426;  Ex  parte  Lucius  Eames, 
2  Story,  C.  C.  322  ;  In  re  Reynolds,  9  Nat.  Bank.  Reg.  50 ;  Allen  & 
Co.  v.  Montgomery,  10  Nat.  Bank  Reg.  503.  The  Bankrupt  Act  was 
intended,  and  must  be  presumed,  to  afford  the  best  mode  of  adminis- 
tering the  estates  of  insolvents.  It  will  not  tolerate  an  attempt  to 
carry  into  effect  any  other  plan  inconsistent  therewith.  Cookingham 
v.  Morgan,  5  B.  R.  16,  7  Blatchf.  480. 

It  is  not  claimed,  that,  although  the  assignment  was  a  valid,  legal, 
and  fair  one  for  the  benefit  of  all  the  creditors,  the  subsequent  adjudi- 
cation in  bankruptcy  rendered  it  invalid,  illegal,  and  unfair,  but  that  it 
had  the  effect  of  suspending  its  further  operation. 

The  Bankrupt  Act  of  March  2,  1867,  as  soon  as  it  went  into 
operation,  ipso  facto  suspended  all  action  arising  under  State  laws. 
Commonwealth  v.  O'Hara,  1  Nat.  Bank.  Reg.  19  ;  In  re  Krogman, 
5  Nat.  Bank  Reg.  116. 

It  is  immaterial  whether  the  statute  of  Ohio,  under  which  the  assign- 
ment was  made,  is  properly  an  insolvent  law.  It,  however,  certainly 
purports  and  contemplates  the  control  and  disposition  of  the  estate  of 
persons  who  are  unable  to  pay  their  debts,  and  are  therefore  insolvent. 
It  is  an  insolvent  act,  because  it  presumes  the  debtor  to  be  unable  to 
pay  his  debts  ;  but  it  is  not  a  bankrupt  act  in  the  strict  sense,  for  it 
does  not  purport  to  discharge  the  debtor  from  paying  them. 

The  most  important  authority  on  this  question,  the  one  containing 
the  clearest  reasoning,  is  the  opinion  of  the  court,  per  Blodgett,  J., 
In  re  Merchants'  Insurance  Company,  6  Nat.  Bank.  Reg.  43  :  — 

"  It  seems  clear  to  us,  that  in  so  far  as  a  State  law  attempts  to 
administer  on  the  effects  of  an  insolvent  debtor,  and  distribute  them 
among  his  creditors,  it  is  to  all  intents  and  purposes  an  insolvent  law, 
although  it  may  not  authorize  a  discharge  of  a  debtor  from  further 
liability ;  .  .  .  and,  when  insolvency  exists  so  as  to  make  the  debtor 
a  proper  subject  for  the  operation  of  the  Bankrupt  Act,  the  exclusive 
jurisdiction  of  the  Bankrupt  Court  attaches,  and  the  State  court  and 
those  acting  under  its  mandate  must  surrender  the  control  of  its 
assets." 


76  MAYER   V.    HELLMAN.  [CHAP.  I. 

By  insolvency,  as  used  in  the  provisions  of  the  Bankrupt  Act  when 
applied  to  traders  and  merchants,  is  meant  their  inability  to  pay  their 
debts  as  they  become  due  in  the  ordinary  course  of  their  business. 

This  is  the  legal  definition  of  the  term,  and  such  has  been  the  uni- 
versal construction  of  it  by  the  Federal  courts.  In  re  Goldschmidt, 
3  B.  R.  165  ;  In  re  Freeman,  4  B.  R.  64 ;  In  re  Lutgens,  7  Pac.  L.  R. 
89  ;  In  re  Alonzo  Pearce,  21  Vt.  611 ;  In  re  Brodhead,  2  B.  R.  278  ; 
Smith  v.  Ely,  1  N.  Y.  Leg.  Obs.  343  ;  Sawyer  v.  Turpin,  5  B.  R.  339 ; 
In  re  Walton  et  al.,  Dead}-,  442. 

MR.  JUSTICE  FIELD  delivered  the  opinion  of  the  court. 

The  validity  of  the  claim  of  the  assignee  in  bankruptc}'  depends,  as 
a  matter  of  course,  upon  the  legality  of  the  assignment  made  under 
the  laws  of  Ohio.  Independently  of  the  Bankrupt  Act,  there  could  be 
no  serious  question  raised  as  to  its  legality.  The  power  which  every 
one  possesses  over  his  own  property  would  justify  any  such  disposition 
as  did  not  interfere  with  the  existing  rights  of  others  ;  and  an  equal 
distribution  by  a  debtor  of  his  property  among  his  creditors,  when 
unable  to  meet  the  demands  of  all  in  full,  would  be  deemed  not  only  a 
legal  proceeding,  but  one  entitled  to  commendation.  Creditors  have  a 
right  to  call  for  the  application  of  the  property  of  their  debtor  to  the 
satisfaction  of  their  just  demands ;  but,  unless  there  are  special  cir- 
cumstances giving  priority  of  right  to  the  demands  of  one  creditor  over 
another,  the  rule  of  equity  would  require  the  equal  and  ratable  distri- 
bution of  the  debtor's  property  for  the  benefit  of  all  of  them.  And  so, 
whenever  such  a  disposition  has  been  voluntarily  made  by  the  debtor, 
the  courts  in  this  country  have  uniformly  expressed  their  approbation 
of  the  proceeding.  The  hinderance  and  delay  to  particular  creditors, 
in  their  efforts  to  reach  before  others  the  property  of  the  debtor,  that 
ma}-  follow  such  a  conveyance,  are  regarded  as  unavoidable  incidents 
to  a  just  and  lawful  act,  which  in  no  respect  impair  the  validity  of  the 
transaction. 

The  great  object  of  the  Bankrupt  Act,  so  far  as  creditors  are  con- 
cerned, is  to  secure  equality  of  distribution  among  them  of  the  prop- 
erty of  the  bankrupt.  For  that  purpose,  it  sets  aside  all  transactions 
had  within  a  prescribed  period  previous  to  the  petition  in  bank- 
ruptcy, defeating,  or  tending  to  defeat,  such  distribution.  It  reaches 
to  proceedings  of  every  form  and  kind  undertaken  or  executed  within 
that  period  by  which  a  preference  can  be  secured  to  one  creditor  over 
another,  or  the  purposes  of  the  act  evaded.  That  period  is  four  months 
for  some  transactions,  and  six  months  for  others.  Those  periods  con- 
stitute the  limitation  within  which  the  transactions  will  be  examined 
and  annulled,  if  conflicting  with  the  provisions  of  the  Bankrupt  Act. 

Transactions  anterior  to  these  periods  are  presumed  to  have  been 
acquiesced  in  by  the  creditors.  There  is  sound  policy  in  prescribing  a 
limitation  of  this  kind.  It  would  be  in  the  highest  degree  injurious  to 
the  community  to  have  the  validity  of  business  transactions  with 
debtors,  in  which  it  is  interested,  subject  to  the  contingency  of  being 


SECT.  II.]  MAYER   V.   HELLMAN.  77 

assailed  by  subsequent  proceedings  in  bankruptcy.  Unless,  therefore, 
a  transaction  is  void  against  creditors  independently  of  ^he  provisions 
of  the  Bankrupt  Act,  its  validity  is  not  open  to  contestation  by  the  as- 
signee, where  it  took  place  at  the  period  prescribed  by  the  statute 
anterior  to  the  proceedings  in  bankruptcy.  The  assignment  in  this 
case  was  not  a  proceeding,  as  already  said,  in  hostility  to  the  creditors, 
but  for  their  benefit.  It  was  not,  therefore,  void  as  against  them,  or 
even  voidable.  Executed  six  months  before  the  petition  in  bankruptcy 
was  filed,  it  is,  to  the  assignee  in  bankruptcy,  a  closed  proceeding. 

The  counsel  of  the  plaintiffs  in  error  have  filed  an  elaborate  argu- 
ment to  show  that  assignments  for  the  benefit  of  creditors  generally 
are  not  opposed  to  the  Bankrupt  Act,  though  made  within  six  months 
previous  to  the  filing  of  the  petition.  Their  argument  is,  that  such  an 
assignment  is  only  a  voluntary  execution  of  what  the  Bankrupt  Court 
would  compel ;  and  as  it  is  not  a  proceeding  in  itself  fraudulent  as 
against  creditors,  and  does  not  give  a  preference  to  one  creditor  over 
another,  it  conflicts  with  no  positive  inhibition  of  the  statute.  There  is 
much  force  in  the  position  of  counsel,  and  it  has  the  support  of  a  de- 
cision of  the  late  Mr.  Justice  Nelson,  in  the  Circuit  Court  of  New 
York,  in  Sedgwick  v.  Place,  First  Nat.  Bank.  Reg.  204,  and  of  Mr.  Jus- 
tice Swayne  in  the  Circuit  Court  of  Ohio,  in  Langley  v.  Perry,  2  Nat. 
Bank.  Reg.  180.  Certain  it  is  that  such  an  assignment  is  not  abso- 
lutely void ;  and,  if  voidable,  it  must  be  because  it  may  be  deemed, 
perhaps,  necessary  for  the  efficiency  of  the  Bankrupt  Act  that  the 
administration  of  an  insolvent's  estate  shall  be  intrusted  to  the  direc- 
tion of  the  District  Court,  and  not  left  under  the  control  of  the  ap- 
pointee of  the  insolvent.  It  is  unnecessary,  however,  to  express  an}' 
decided  opinion  upon  this  head  ;  for  the  decision  of  the  question  is  not 
required  for  the  disposition  of  the  case. 

In  the  argument  of  the  counsel  of  the  defendant  in  error,  the  posi- 
tion is  taken  that  the  Bankrupt  Act  suspends  the  operation  of  the  act 
of  Ohio  regulating  the  mode  of  administering  assignments  for  the 
benefit  of  creditors,  treating  the  latter  as  an  insolvent  law  of  the  State. 
The  answer  is,  that  that  statute  of  Ohio  is  not  an  insolvent  law  in  any 
proper  sense  of  the  term.  It  does  not  compel,  or  in  terms  even 
authorize,  assignments :  it  assumes  that  such  instruments  were  con- 
veyances previously  known,  and  only  prescribes  a  mode  by  which  the 
trust  created  shall  be  enforced.  It  provides  for  the  security  of  the 
creditors  by  exacting  a  bond  from  the  trustees  for  the  discharge  of 
their  duties  ;  it  requires  them  to  file  statements  showing  what  they  have 
done  with  the  propert}r ;  and  affords  in  various  ways  the  means  of  com- 
pelling them  to  carry  out  the  purposes  of  the  conveyance.  There  is 
nothing  in  the  act  resembling  an  insolvent  law.  It  does  not  discharge 
the  insolvent  from  arrest  or  imprisonment:  it  leaves  his  after-acquired 
property  liable  to  his  creditors  precisely  as  though  no  assignment  had 
been  made.  The  provisions  for  enforcing  the  trust  are  substantially 
such  as  a  court  of  chancery  would  apply  in  the  absence  of  any  statutory 


78  BOESE   V.    KING.  [CHAP.  I. 

provision.  The  assignment  in  this  case  must,  therefore,  be  regarded 
as  though  t'ae  statute  of  Ohio,  to  which  reference  is  made,  had  no  exist- 
ence. There  is  an  insolvent  law  in  that  State  ;  but  the  assignment  in 
question  was  not  made  in  pursuance  of  any  of  its  provisions.  The 
position,  therefore,  of  counsel,  that  the  Bankrupt  Law  of  Congress  sus- 
pends all  proceedings  under  the  Insolvent  Law  of  the  State,  has  no 
application. 

The  assignment  in  this  case  being  in  our  judgment  valid  and  binding, 
there  was  no  propert}7  in  the  hands  of  the  plaintiffs  in  error  which  the 
assignee  in  bankruptcy  could  claim.  The  assignment  to  them  divested 
the  insolvents  of  all  proprietar}*  rights  they  held  in  the  property  de- 
scribed in  the  conveyance.  They  could  not  have  maintained  an}7  action 
either  for  the  personalty  or  realty.  There  did,  indeed,  remain  to  them 
an  equitable  right  to  have  paid  over  to  them  any  remainder  after  the 
claims  of  all  the  creditors  were  satisfied.  If  a  contingency  should  ever 
arise  for  the  assertion  of  this  right,  the  assignee  in  bankruptcy  may 
perhaps  have  a  claim  for  such  remainder,  to  be  applied  to  the  payment 
of  creditors  not  protected  by  the  assignment,  and  whose  demands  have 
been  created  subsequent  to  that  instrument.  Of  this  possibilit}'  we 
have  no  occasion  to  speak  now. 

Our  conclusion  is,  that  the  court  below  erred  in  sustaining  the 
demurrer  to  the  defendant's  answer;  and  the  judgment  of  the 
court  must,  therefore,  be  reversed,  and  the  cause  remanded  for 
further  proceedings. 


BOESE  v.  KING. 
SUPREME  COURT  OF  THE  UNITED  STATES,  APRIL  30,  1883. 

[Reported  in  108  United  States,  379.] 

SUIT  by  a  receiver  appointed  by  a  State  court  in  New  York  on  return 
of  execution  unsatisfied ;  brought  in  New  York  against  assignees  of 
the  property  of  the  judgment  debtor  under  an  assignment  for  the 
benefit  of  creditors,  made  in  accordance  with  the  laws  of  New  Jersey 
(of  which  State  the  assignees  and  the  debtor  are  citizens),  and  to 
recover  proceeds  of  the  debtor's  propert}7  voluntarily  brought  within 
the  State  of  New  York  by  the  assignees  for  distribution  under  the 
assignment. 

By  deed  of  assignment  executed  and  delivered  September  25, 
1873,  Wm.  H.  Locke,  a  citizen  of  New  Jersey,  transferred  and  con- 
veyed to  Wm.  King,  John  M.  Goetchins,  and  Edward  E.  Poor,  and 
the  survivor  of  them,  and  their  and  his  heirs  and  assigns,  all  his  prop- 
ert\-  of  every  kind  and  description  —  except  such  as  was  exempt  by 
law  from  execution  —  "in  trust  to  take  possession  of  and  collect  and 
to  sell  and  dispose  of  the  same  at  public  or  private  sale  in  their  discre- 


SECT.  II.]  BOESE   V.   KING.  79 

tion,  and  to  distribute  the  proceeds  to  and  among  the  creditors  of  the 
said  Wm.  H.  Locke,  in  proportion  to  their  several  just  demands, 
pursuant  to  the  statutes  in  such  case  made  and  provided,  and  on  the 
further  trust  to  pay  the  surplus,  if  any  there  be,  after  fully  satisfying 
and  paving  the  said  creditors  and  all  proper  costs  and  charges,  to  the 
said  Wm.  H.  Locke." 

The  intention  of  Locke  and  the  assignors  was  to  have  a  distribution 
made  among  the  creditors  of  the  former  in  conformity  with  the 
requirements  of  an  act  of  the  legislature  of  New  Jersey,  passed 
April  JlG^JJRB,  entitled  ".An  Act  to  secure  to  creditors  an  equal  and 
just  division  of  the  estates  of  debtors  who  convey  to  assignees  for  the 
benefit  of  creditors." 

That  act  provided,  among  other  things,  that  every  conveyance  or 
assignment  by  a  debtor  of  his  estate,  real  or  personal  or  both,  in  trust, 
to  an  assignee  for  the  benefit  of  creditors,  shall  be  made  for  their  equal 
benefit  in  proportion  to  their  several  demands  to  the  net  amount  that 
shall  come  to  the  hands  of  the  assignee  for  distribution ;  and  all 
preferences  of  one  creditor  over  another,  or  whereby  one  shall  be  first 
paid  or  have  a  greater  proportion  in  respect  to  his  claim  than  another, 
shall  be  deemed  fraudulent  and  void,  excepting  mortgage  and  judg- 
ment creditors,  when  the  judgment  has  not  been  by  confession  for 
the  purpose  of  preferring  creditors  (§  1) ;  further,  that  the  debtor  shall 
annex  to  his  assignment  an  inventory,  under  oath  or  affirmation,  of  all 
of  his  property,  together  with  a  list  of  his  creditors,  and  the  amount  of 
their  respective  claims,  such  inventory  not,  however,  to  be  conclusive 
as  to  the  quantity  of  the  debtor's  estate,  and  the  assignee  to  be  entitled 
to  an}'  other  property  belonging  to  the  debtor  at  the  time  of  the  assign- 
ment, and  comprehended  within  its  general  terms  (§  2).  Other  sections 
provided  for  public  notice  by  the  assignee  of  the  assignment ;  for  the 
presentation  of  claims  of  creditors ;  for  filing  by  the  assignee  under 
oath  of  a  true  inventory  and  valuation  of  the  estate  ;  for  the  execution 
by  him  of  a  bond  in  double  the  amount  of  such  inventory  or  valuation  ; 
for  the  recording  of  such  bond  ;  for  the  filing  with  the  clerk  of  the 
court  of  common  pleas  of  the  county  of  the  debtor's  residence,  within 
three  months  after  the  date  of  the  assignment,  of  a  list  of  all  such 
creditors  as  claim  to  be  such,  and  the  amount  of  their  demands,  first 
making  it  known  by  advertisement  that  all  claims  against  the  estate 
must  be  made  as  prescribed  in  the  statute,  or  Jie  forever  barred  from 
coming  in  for  a  dmdend  of  said  estate,  otherwise  than  as  provided  ;  for 
the  right  of  the""assigriee~oif  any  creditor  or  person  interested  to  except 
to  the  allowance  of  any  claim  presented  ;  for  the  adjudication  of  such 
exceptions ;  for  fair  and  equal  dividends  from  time  to  time  among  the 
creditors  of  the  assets  in  proportion  to  their  respective  claims  ;  and  for 
a  final  accounting  by  the  assignee  in  the  orphans'  court  of  the  county 
—  such  settlement  and  adjudication  to  be  conclusive  on  all  parties, 
except  fbr  assets  which  may  afterward  come__to  band,  or  for  frauds  or 
apparent  error  (§§  3,  4,  5,  6,  and  7). 


80  BOESE   V.  KING.  [CHAP.  L 

The  act  further  provided  — 

"  §  11.  If  any  creditor  shall  not  exhibit  his,  her,  or  their  claims 
within  the  terra  of  three  months  as  aforesaid,  such  claim  shall  be  barred 
of  a  dividend  unless  the  estate  shall  prove  sufficient  after  the  debts  ex- 
hibited and  allowed  are  fully  satisfied,  or  such  creditor  shall  find  some 
other  estate  not  accounted  for  by  the  assignee  or  assignees  before 
distribution,  in  which  case  such  barred  creditor  shall  be  entitled  to  a 
ratable  proportion  therefrom. 

"  §  12.  Whenever  an}'  assignee  or  assignees,  as  aforesaid,  shall  sell 
any  real  estate  of  such  debtor  or  debtors  a.s  is  conveyed  in  trust  as 
aforesaid,  he  or  they  shall  proceed  to  advertise  and  sell  the  same  in 
manner  as  is  now  or  may  hereafter  be  prescribed  in  the  case  of  an 
executor  or  administrator  directed  to  sell  lands  by  an  order  of  the 
orphans'  court  for  the  payment  of  the  debts  of  the  testator  or 
intestate. 

"  §  13.  Every  assignee,  as  aforesaid,  shall  have  as  full  power  and 
authority  to  dispose  of  all  estate,  real  and  personal,  assigned,  as  the 
said  debtor  or  debtors  had  at  the  time  of  the  assignment,  and  to  sue 
for  and  recover  in  the  proper  name  of  such  assignee  or  assignees, 
everything  belonging  or  appertaining  to  said  estate,  real  or  personal, 
of  said  debtor  or  debtors,  and  shall  have  full  power  and  authority  to 
refer  to  arbitration,  settle  and  compound,  and  to  agree  with  any  person 
concerning  the  same,  and  to  redeem  all  mortgages  and  conditional 
contracts,  and  generally  to  act  and  do  whatever  the  said  debtor  or 
debtors  might  have  lawfully  done  in  the  premises. 

"  §  14.  Nothing  in  this  act  shall  be  taken  or  understood  as  dis- 
charging said  debtor  or  debtors  from  liabilities  to  their  creditors  who 
ma}*  not  choose  to  exhibit  their  claims  either  in  regard  to  the  persons 
of  such  debtors  or  to  any  estate,  real  or  personal,  not  assigned  as 
aforesaid,  but  with  respect  to  the  creditors  who  shall  come  in  under 
said  assignment  and  exhibit  their  demands  as  aforesaid  for  a  dividend, 
the}*  shall  be  wholly  barred  from  having  afterward  any  action  or  suit  at 
law  or  equity  against  such  debtors  or  their  representatives,  unless  on 
the  trial  of  such  action  or  hearing  in  equit}*  the  said  creditor  shall 
prove  fraud  in  the  said  debtor  or  debtors  with  respect  to  the  said 
assignment,  or  concealing  his  estate,  real  or  personal,  whether  in 
possession,  held  in  trust,  or  otherwise." 

The  estate  which  came  into  the  hands  of  the  assignees  was  converted 
into  money  in  New  Jerse}*,  —  the  amount  being  nearly*  $200,000,  —  and 
the  proceeds,  for  the  convenience  of  the  assignees,  were  deposited  in  a 
bank  in  the  city  of  New  York.  No  proceedings  in  bankruptcy  were 
ever  taken  against  Locke. 

On  the  3d  day  of  February,  1876,  William  Pickhardt  and  Adolph 
Kutroff  recovered  a  judgment  against  Locke  in  the  Supreme  Court  of 
the  city  and  county  of  New  York  for  $3,086.85.  Upon  that  judgment 
execution  was  issued  and  returned  unsatisfied.  Subsequently,  May  27, 
1876,  in  certain  proceedings,  before  one  of  the  judges  of  that  court, 


SECT.  II.]  BOESE    V.   KINO.  81 

supplementary  to  the  return  of  execution,  Thomas  Boese,  plaintiff  in 
error,  was  appointed  receiver  of  the  property  of  Locke,  and  having 
executed  a  bond  for  the  faithful  discharge  of  the  duties  of  his  trust, 
he  obtained  an  order  from  the  same  court  giving  him  authority,  as 
receiver,  to  bring  an  action  against  the  assignees  of  Locke.  There- 
upon, June  9,  1876,  he  commenced  this  action.  It  proceeds  upon 
these  grounds:  1.  That  the  indebtedness  from  Locke  to  Pickhai'dt 
and  Kutroff  arose  in  New  York,  where  they  reside,  before  the  making 
of  said  assignment ;  2.  That  the  statute  of  New  Jersey  with  reference 
to  or  under  which  said  a'ssignment  was  made  was,  by  force  of  the 
Bankruptcy  Act  of  1867,  suspended  and  of  no  effect ;  3.  That  the 
assignment  was  fraudulent  and  void  by  the  laws  of  New  Jersey,  in  that 
it  was  made  with  the  intent  upon  the  part  of  Locke  to  hinder,  delay, 
and  defraud  his  creditors,  and  in  that  he  had  a  large  amount  of  money 
and  other  property  which  he  fraudulently  retained  to  his  own  use  and 
did  not  surrender  to  the  assignees. 

The  prayer  of  the  complaint  —  the  allegations  of  which  were  fully 
met  by  answer  —  was  for  judgment  against  the  defendants;  that  the 
assignments  be  adjudged  fraudulent  and  void  ;  and  that  the  defendants 
be  required  to  account  to  plaintiff  for  all  the  property  and  money 
received  or  to  which  they  are  entitled  under  and  by  virtue  of  the 
assignment.  It  was  conceded  at  the  hearing  that  defendants  had  in 
their  hands,  of  the  proceeds  of  the  sale  of  the  assigned  property,  an 
amount  sufficient  to  pay  the  judgment  of  Pickhardt  and  Kutroff. 

The  Supreme  Court  of  New  York,  both  in  general  and  special  terms, 
sustained  the  action  and  gave  judgment  against  the  assignees  in  favor 
of  Boese,  as  receiver,  for  the  amount  of  the  demand  of  Pickhardt  and 
Kutroff.1  But  in  the  Court  of  Appeals  that  judgment  was  reversed, 
with  directions  to  enter  judgment  for  the  defendants.2 

The  receiver  brought  the  suit  here  in  error  asking  to  have  this 
decision  reversed. 

Mr.-C.  Bainbridye  Smith,  for  plaintiff  in  error. 

Mr.  A.  P.  Whitehead,  for  defendant  in  error. 

MR.  JUSTICE  HARLAN  delivered  the  opinion  of  the  court.  After 
reciting  the  facts  in  the  foregoing  language  he  continued:  — 

We  are  to  consider  in  this  case  whether  the  final  judgment  of  the 
Court  of  Appeals  of  New  York  has  deprived  the  plaintiff  in  error  of 
any  right,  title,  or  privilege  under  the  Constitution  or  laws  of  the 
United  States. 

We  dismiss  from  consideration  all  suggestions  in  the  pleadings  of 
actual  fraud  upon  the  part  either  of  Locke  or  of  his  assignees.  The 
court  of  original  jurisdiction  found  us  a  fact  —  and  upon  that  basis  the 
case  was  considered  by  the  Court  of  Appeals  —  that  the  assignment 
was  executed  and  delivered  by  the  former  and  accepted  by  the  latter  in 
good  faith  and  without  an}*  purpose  to  hinder,  delay,  or  defraud  an}* 
creditor  of  Locke.  It  is  further  found  as  a  fact  that  the  assignment 

*  Boese  »:.  Locke.  17  Htm,  270.  a  Boese  v.  Kin£,  78  N.  Y.  471. 


82  BOESE   V.   KING.  [CHAP.  I. 

was  made  with  the  intent,  bonafide,  to  make  an  equal  distribution  of 
the  proceeds  of  the  trust  estate  among  creditors,  in  conformity  with  the 
local  statute.  The  Supreme  Court  of  New  York  ruled  that  the  statute 
of  New  Jersey  was,  in  its  nature  and  effect,  a  bankrupt  law,  and  the 
power  conferred  upon  Congress  to  establish  a  uniform  system  of  bank- 
ruptcy, having  been  exercised  by  the  passage  of  the  act  of  1867,  the 
latter  act  wholly  suspended  tire  operation  of  the  local  statute  as  to  all 
cases  within  its  purview ;  consequentl}-,  it  was  held,  the  assignment 
was  not  valid  for  any  purpose.  The  Court  of  Appeals,  recognizing  the 
paramount  nature  of  the  Bankrupt  Act  of  Congress,  and  assuming  that 
the  14th  section  of  the  New  Jersey  statute,  relating  to  the  effect  upon 
the  claims  of  creditors  who  exhibit  their  demands  for  a  dividend,  was 
inconsistent  with  that  act,  and  therefore  inoperative,  adjudged  that 
other  portions  of  the  local  statute  providing  for  the  equal  distribution 
of  the  debtor's  property  among  his  creditors,  and  regulating  the  general 
conduct  of  the  assignee,  were  not  inconsistent  with  nor  were  they 
necessarily  suspended  by  the  act  of  1867  ;  further,  that  the  New  Jersey 
statute  did  not  create  the  right  to  make  voluntary  assignments  for  the 
equal  benefit  of  creditors,  but  was  only  restrictive  of  a  previously 
existing  right,  and  imposed,  for  the  benefit  of  creditors,  salutary  safe- 
guards around  its  exercise  ;  consequently,  had  the  whole  of  the  New 
Jersey  statute  been  superseded,  the  right  of  a  debtor  to  make  a 
voluntarj'  assignment  would  still  have  existed.  The  assignment,  as  a 
transfer  of  the  debtor's  property,  was,  therefore,  upheld  as  in  harmony 
with  the  general  object  and  purposes  of  the  Bankrupt  Act,  unassailable 
by  reason  merely  of  the  fact  that  some  of  the  provisions  of  the  local 
statute  may  have  been  suspended  by  the  act  of  1867. 

In  the  view  which  we  take  of  the  case  it  is  unnecessary  to  consider 
all  of  the  questions  covered  by  the  opinion  of  the  State  court  and 
discussed  here  by  counsel.  Especially  it  is  not  necessary  to  determine 
whether  the  Bankrupt  Act  of  1867  suspended  or  superseded  all  of  the 
provisions  of  the  New  Jersey  statute.  Undoubtedly  the  local  statute 
was,  from  the  date  of  the  passage  of  the  Bankrupt  Act,  inoperative  in 
so  far  as  it  provided  for  the  discharge  of  the  debtor  from  future  liability 
to  creditors  who  came  in  under  the  assignment  and  claimed  to  partici- 
pate in  the  distribution  of  the  proceeds  of  the  assigned  property.  It  is 
equally  clear,  we  think,  that  the  assignment  by  Locke  of  his  entire 
property  to  be  disposed  of  as  prescribed  by  the  statute  of  New  Jersey, 
and  therefore  independently  of  the  bankruptcy  court,  constituted,  itself, 
an  act  of  bankruptcy,  for  which,  upon  the  petition  of  a  creditor  filed  in 
proper  time,  Locke  could  have  been  adjudged  a  bankrupt,  and  the 
property  wrested  from  his  assignees  for  administration  in  the  bank- 
ruptcy court.  In  re  Burt,  1  Dillon,  439,  440  ;  In  re  Goldschmidt, 
3  Bank.  Reg.  164  ;  In  matter  of  Seymour  T.  Smith,  4  Bank.  Reg.  377. 
The  claim  of  Pickhardt  and  Kutroff  existed  at  the  time  of  the  assign- 
ment. The  wa}-  was,  therefore,  open  for  them,  by  timely  action,  to 
secure  the  control  and  management  of  the  assigned  property  by  that 


SECT.  II.]  BOESE   V.   KING.  83 

court  for  the  equal  benefit  of  all  the  creditors  of  Locke.  But  they 
elected  to  He  by  until  after  the  expiration  of  the  time  within  which  the 
assignment  could  be  attacked  under  the  provisions  of  the  Bankrupt 
Act;  and  now  seek,  by  this  suit  in  the  name  of  the  plaintiff  in  error, 
to  secure  an  advantage  or  preference  over  all  others ;  this,  notwith- 
standing the  assignment  was  made  without  any  intent  to  hinder,  delay, 
or  defraud  creditors.  In  order  to  obtain  that  advantage  or  preference, 
the  plaintiff  in  error  relies  on  the  paramount  force  of  the  Bankrupt  Act, 
the  primary  object  of  which,  as  this  court  has  frequently  announced, 
was  to  secure  equality  among  the  creditors  of  a  bankrupt.  Mayer 'v. 
Hellman,  91  U.  S.  496-501 ;  Reed  v.  Mclntyre,  98  U.  S.  507-509 ; 
Buchanan  v.  Smith,  16  Wall.  277.  It  can  hardly  be  that  the  court  is 
obliged  to  lend  its  aid  to  those  who,  neglecting  or  refusing  to  avail 
themselves  of  the  provisions  of  the  act  of  Congress,  seek  to  accomplish 
ends  inconsistent  with  that  equality  among  creditors  which  those  provi- 
sions were  designed  to  secure.  If  it  be  assumed,  for  the  purposes  of 
this  case,  that  the  statute  of  New  Jersey  was,  as  to  each  and  all  of  its 
provisions,  suspended  when  the  Bankrupt  Act  of  1867  was  passed,  it 
does  not  follow  that  the  assignment  b\-  Locke  was  ineffectual  for  every 
purpose.  Certainly,  that  instrument  was  sufficient  to  pass  the  title 
from  Locke  to  his  assignees.  It  was  good  as  between  them,  at  least 
until  Locke,  in  some  appropriate  mode,  or  by  some  proper  proceedings, 
manifested  a  right  to  have  it  set  aside  or  cancelled  upon  the  ground  of 
a  mutual  mistake  in  supposing  that  the  local  statute  of  1846  was 
operative.  And  in  the  absence  of  proceedings  in  the  bankruptcy  court 
impeaching  the  assignment,  and  so  long  as  Locke  did  not  object,  the 
assignees  had  authority  to  sell  the  property  and  distribute  the  proceeds 
among  all  the  creditors,  disregarding  so  much  of  the  deed  of  assign- 
ment as  required  the  assignees,  in  the  distribution  of  the  proceeds,  to 
conform  to  the  local  statute.  The  assignment  was  not  void  as  be- 
tween the  debtor  and  the  assignees  simply  because  it  provided  for  the 
distribution  of  the  proceeds  of  the  property  in  pursuance  of  a  statute, 
none  of  the  provisions  of  which,  it  is  claimed,  were  then  in  force.  Had 
this  suit  been  framed  for  the  purpose  of  compelling  the  assignees  to 
account  to  all  the  creditors  for  the  proceeds  of  the  sale  of  the  property 
committed  to  their  hands,  without  discrimination  against  those  who  did 
not  recognize  the  assignment  and  exhibit  their  demands  within  the 
time  and  mode  prescribed  by  the  New  Jersey  statute,  a  wholly  differ- 
ent question  would  have  been  presented  for  determination.  It  has  been 
framed  mainly  upon  the  idea  that  by  reason  of  the  mistake  of  Locke 
and  his  assignees  in  supposing  that  the  property  could  be  administered 
under  the  provisions  of  the  local  statute  of  184G,  even  while  the  Bank- 
rupt Act  was  in  force,  the  title  did  not  pass  for  the  benefit  of  creditors 
according  to  their  respective  legal  rights.  In  this  view,  as  has  been 
indicated,  we  do  not  concur. 

We  are  of  opinion  that,  except  as  against  proceedings  instituted 
under  the  Bankrupt  Act  for  the  purpose  of  securing  the  administration 


84  BOESE   V.    KING.  [~CHAP.  L 

of  the  property  in  the  bankruptcy  court,  the  assignment,  having  been 
made  without  intent  to  hinder,  dela}*,  or  defraud  creditors,  was  valid, 
for  at  least  the  purpose  of  securing  an  equal  distribution  of  the  estate 
among  all  the  creditors  of  Locke,  in  proportion  to  their  several  demands, 
Reed  v.  Mclntire,  98  U.  S.  507-509  ;  and,  consequently,  we  adjudge 
only  that  the  plaintiff  in  error  is  not  entitled,  by  reason  of  any  conflict 
between  the  local  statute  and  the  Bankrupt  Act  of  1877,  or  by  force 
of  the  before-mentioned  judgment  and  the  proceedings  thereunder,  to 
the  possession  of  the  assigned  property  or  of  its  proceeds,  as  against 
the  assignees,  or  to  a  priority  of  claim  for  the  benefit  of  Pickhardt  and 
Kutroff  upon  such  proceeds.  The  judgment  is  affirmed. 

MR.  JUSTICE  MATTHEWS  (with  whom  concurred  MILLER,  GRAY,  and 
BLATCHFORD,  JJ.),  dissenting. 

MR.  JUSTICE  MILLER,  MR.  JUSTICE  GRAY,  MR.  JUSTICE  BLATCHFORD, 
and  myself,  are  unable  to  agree  with  the  opinion  and  judgment  of  the 
court  in  this  case.  The  grounds  of  our  dissent  may  be  very  generally 
and  concisely  stated  as  follows  :  — 

The  New  Jersey  statute  of  April  16,  1846,  the  validity  and  effect 
of  which  are  in  question,  is  an  insolvent  or  bankrupt  law,  which  pro- 
vides for  the  administration  of  the  assets  of  debtors  who  make  assign- 
ments of  all  their  assets  to  trustees  for  creditors,  and  for  their 
discharge  from  liabilities  to  creditors  sharing  in  the  distribution.  It 
was  accordingly  in  conflict  with  the  National  Bankrupt  Act  of  1867 
when  the  latter  took  effect,  and  from  that  time  became  suspended  and 
without  force  until  the  repeal  of  the  act  of  Congress.  It  is  conceded 
that  the  14th  section,  which  provides  for  the  discharge  of  the  debtor, 
is  void  by  reason  of  this  conflict,  and,  in  our  opinion,  this  carries  with 
it  the  entire  statute.  For  the  statute  is  an  entiret}',  and,  to  take  away 
the  distinctive  feature  contained  in  the  14th  section,  destro3~s  the 
system.  It  is  not  an  independent  provision,  but  an  inseparable  part 
of  the  scheme  contained  in  the  law. 

This  being  so,  the  assignment  in  the  present  case  must  be  regarded 
as  unlawful  and  void  as  to  creditors.  For  it  was  made  in  view  of  this 
statute  and  to  be  administered  under  it.  Such  is  the  express  recital  of 
the  instrument  and  the  finding  of  the  fact  by  the  court.  It  is  as  if  the 
provisions  of  the  act  had  been  embodied  in  it  and  it  had  declared 
expressly  that  it  was  executed  with  the  proviso  that  no  distribution 
should  be  made  of  any  part  of  the  debtor's  estate  to  any  creditor  except 
upon  condition  of  the  release  of  the  unpaid  portion  of  his  claim. 

It  is  not  possible,  we  think,  to  treat  the  assignment  as  though  the 
law  of  the  State  in  view  of  which  it  was  made,  and  subject  to  the  pro- 
visions of  which  it  was  intended  to  operate,  had  never  existed,  or  had 
been  repealed  before  its  execution.  Because  there  is  no  reason  to 
believe  that,  in  that  state  of  the  case,  the  debtor  would  have  made  an 
assignment  on  such  terms.  To  do  so  is  to  construct  for  him  a  contract 
which  he  did  not  make  and  which  there  is  no  evidence  that  he  intended 


SECT.  II.]  BOESE   V.   KING.  85 

to  make.  It  must  be  regarded,  then,  as  a  proceeding  under  the 
statute  of  New  Jersey,  and  as  such,  with  that  statute,  made  void,  as 
to  creditors,  by  the  National  Bankrupt  Act  of  1867.  6therwise  that 
uniform  rule  as  to  bankruptcies,  which  it  was  the  policy  of  the  Consti- 
tution and  of  the  act  of  Congress  pursuant  to  it,  to  provide,  would  be 
defeated.  No  title  under  it,  therefore,  could  pass  to  the  defendants  in 
error,  and  the  judgment  creditors  who  acquired  a  lien  upon  the  fund  in 
their  hands  were  by  law  entitled  to  appropriate  it,  as  the  propertj*  of 
their  debtor,  to  the  payment  of  their  claims. 

For  these  reasons  we  are  of  opinion  that  the  judgment  of  the  Court 
of  Appeals  of  New  York  should  be  reversed.1 

1  Assignments  made  in  accordance  both  with  State  laws  and  the  prineiples  of  com- 
mon law  were  upheld  in  Hawkins's  Appeal,  34  Conn.  548;  Maltbie  v.  Hotchkiss, 
38  Conn.  80;  Geery's  Appeal,  43  Conn.  2«9,  298;  Cook  v.  Rogers,  31  Mich.  391; 
Thrasher  v.  Bentley,  59  N.  Y.  649 ;  Beck  v.  Parker,  65  Pa.  262 ;  Patty-Joiner  Co.  v. 
Cummins,  93  Tex.  598  ;  Binder  v.  McDonald,  106  Wis.  332.  In  the  case  last  cited  a 
provision  of  the  State  law  dissolving  attachments  prior  to  an  assignment  was  held  to 
be  still  in  force.  But  see  Pelton  v.  Sheridan  (Or.)  144  Pac.  410. 

Assignments  which  derived  their  validity  and  efficacy  from  a  State  insolvent  law 
were  held  void  in  Shryock  v.  Bashore,  13  B.  R.  481 ;  Ketcham  v.  McNamara,  72  Conn. 
709;  Rowe  v.  Page,  51  N.  H.  190. 

Before  the  decision  in  Boese  v.  King  it  was  held  by  some  courts  that  a  general  assign- 
ment for  the  benefit  of  creditors  was  not  an  act  of  bankruptcy  or  opposed  to  the  policy 
of  the  National  Act.  Such  courts,  therefore,  held  such  an  assignment  effectual  even 
though  a  petition  in  bankruptcy  was  filed  within  six  mouths.  Sedgwick  v.  Place, 
1  B.  R.  204 ;  Haas  v.  O'Brien,  66  N.  Y.  597 ;  Von  Hein  v.  Elkus,  8  Hun,  516.  But 
the  great  weight  of  authority  was  otherwise.  Under  the  present  act  a  general  assign- 
ment is  uniformly  held  to  be  made  voidable  if  not  void  by  a  seasonable  petition.  See 
post,  ch.  iv.  sec.  iii. 


86  IN   RE  PLOTKE.  [CHAP.  IL 


CHAPTER  II. 
WHO  MAY  BE  A  BANKRUPT.    • 


SECTION   I. 
ALIENS  AND  NON-RESIDENTS. 

IN  BE  PLOTKE. 

CIRCUIT  COURT  OF  APPEALS,  SEVENTH  CIRCUIT,  NOVEMBER  22,  1900. 
[Reported  in  104  Federal  Reporter,  964.] 

BEFORE  WOODS  and  GROSSCUP,  Circuit  Judges,  and  SEAMAN, 
District  Judge. 

SEAMAN,  District  Judge.  The  alleged  bankrupt,  Emily  Plotke, 
appeals  from  an  order  of  the  District  Court  whereby  she  is  adjudicated 
a  bankrupt  upon  a  creditors'  petition  filed  Ma}T  3,  1899.  The  petition 
states  that  "  Emily  Plotke  has  for  the  greater  portion  of  six  months 
next  preceding  the  date  of  filing  this  petition  had  her  principal  place 
of  business  and  her  domicile  at  Chicago,"  in  said  district,  and  "  owes 
debts  to  the  amount  of  $1,000  and  over";  that  she  is  insolvent,  and 
within  four  months  next  preceding  "  committed  an  act  of  bank- 
ruptcy," and  on  January  3,  1899,  made  "a  general  assignment  for 
the  benefit  of  her  creditors  to  one  John  Poppowitz,"  which  was  duly 
filed  and  recorded.  The  subpoena  issued  thereupon  was  returned  by 
the  marshal  as  served  within  the  district  on  Emily  Plotke,  "by  leav- 
ing a  true  copy  thereof  at  her  usual  place  of  abode,  with  Charles 
Plotke,  an  adult  person,  who  is  a  member  of  the  family."  On  May 
29,  1899,  the  appellant  filed  a  verified  plea,  which  reads  as  follows  : 

"  And  the  said  Emily  Plotke,  especially  limiting  her  appearance  for 
the  purposes  of  this  plea,  in  her  own  proper  person  comes  and  defends 
against  the  foregoing  proceeding,  and  says  that  she  has  not  had  her 
domicile  within  the  territorial  limits  and  jurisdiction  of  this  court  for 
the  six  months  next  preceding  the  filing  of  the  petition  herein,  to  wit, 
six  months  next  preceding  May  3,  A.  D.  1899,  nor  has  she  had  her 
domicile  within  the  territorial  limits  of  the  jurisdiction  of  this  court  as 
aforesaid  during  any  part  of  said  period  of  six  months,  nor  has  she 
now  her  domicile  therein,  nor  has  she  had  her  principal  place  of 
business  within  the  territorial  limits  and  jurisdiction  of  this  court  for 
the  greater  part  of  the  six  months  next  preceding  the  filing  of  the 


SECT.  I.]  IN  RE  PLOTKE.  87 

petition  herein,  to  wit,  six  months  next  preceding  May  3,  A.  D.  1899, 
but  that  before  and  at  the  time  of  the  filing  of  the  petition  herein  as 
aforesaid,  on,  to  wit,  May  3,  A.  D.  1899,  and  for  more  than  five  }'ears 
prior  thereto,  she,  the  said  Emily  Plotke,  was,  and  from  thence  hitherto 
has  been,  and  still  is,  residing  in  the  city  of  St.  Louis,  and  the  State  of 
Missouri,  and  not  in  the  said  Northern  District  of  Illinois,  and  State  of 
Illinois,  and  that  she,  the  said  Emily  Plotke,  was  not  found  or  served 
with  process  in  this  said  proceeding  in  said  Northern  District  of  Illinois, 
or  in  said  State  of  Illinois.  Wherefore  she  says  this  court  is  wholly 
without  jurisdiction  in  the  premises,  and  this  she  is  ready  to  verify. 
Wherefore  she  prays  judgment,  if  this  court  here  shall  take  jurisdiction 
and  cognizance  of  the  proceedings  aforesaid." 

The  petitioning  creditors  filed  a  replication,  and  the  issues  there- 
upon were  referred  for  hearing  to  a  referee,  who  reported  the  testi- 
mony taken,  with  findings  sustaining  the  plea  and  recommending  that 
the  petition  be  dismissed  for  want  of  jurisdiction.  The  finding  was 
overruled  by  the  District  Court,  and  au  adjudication  of  bankruptcy 
entered,  from  which  this  appeal  is  brought. 

The  record  presents  two  questions,  only,  under  the  several  assign- 
ment of  error:  (1)  Whether,  upon  the  undisputed  facts  shown,  the 
case  is  within  the  bankruptcy  jurisdiction  of  the  District  Court ;  and 
(2)  whether  jurisdiction  appears  over  the  person  of  the  alleged 
bankrupt. 

The  first  issue  challenges  the  jurisdiction  of  the  District  Court  over 
the  estate  of  the  bankrupt,  the  subject-matter  of  the  proceeding, 
irrespective  of  the  question  of  jurisdiction  in  personam.  The  facts  are 
undisputed  that  the  bankrupt  has  neither  resided  nor  had  her  domicile 
within  the  district  for  any  period  during  the  six  months  preceding  the  fil- 
ing of  the  petition,  and  has  resided  continuously  in  the  State  of  Missouri 
for  the  past  twelve  years ;  that  she  carried  on  business  in  Chicago, 
within  the  district  (conducted  by  one  Charles  Plotke),  from  April  30, 
1897,  up  to  January  3,  1899  (the  petition  being  filed  May  3,  1899) ; 
and  that  she  executed  a  voluntary  assignment  for  the  benefit  of  cred- 
itors, under  the  statute  of  Illinois,  on  January  3,  1899  (the  assignee 
taking  possession  forthwith,  and  subsequently  disposing  of  the  assets 
and  closing  out  the  business  under  orders  of  the  county  court).  The 
question  is  thus  narrowed  to  an  interpretation  of  the  provisions  of  the 
statute.  Section  2,  subd.  1,  of  the  Bankruptcy  Act  (30  Stat.  545) 
invests  district  courts  with  jurisdiction  to  "  adjudge  persons  bankrupt 
who  have  had  their  principal  place  of  business,  resided  or  had  their 
domicile  within  their  respective  territorial  jurisdictions  for  the  preced- 
ing six  months,  or  the  greater  portion  thereof,  or  who  do  not  have 
their  principal  place  of  business,  reside  or  have  their  domicile  within  the 
United  States,  but  have  property  within  their  jurisdiction,  or  who  have 
been  adjudged  bankrupts  by  courts  of  competent  jurisdiction  without 
the  United  States  and  have  property  within  their  jurisdiction."  As 
both  residence  and  domicile  of  the  bankrupt  were  beyond  the  territorial 


88  IN   RE    PLOTKE.  [CHAP.  II. 

jurisdiction,  the  adjudication  of  bankruptcy  rests  alone  upon  the  pro- 
vision respecting  the  k'  principal  place  of  business."  The  appellees 
contend,  iu  effect,  (1)  that  the  proof  of  a  principal  place  of  business  in 
the  district  for  two  months,  and  of  no  place  of  business  for  the  remain- 
ing period  of  limitation,  establishes  a  case  within  the  meaning  of  the 
words  "  greater  portion  thereof,"  in  the  section  above  quoted  ;  and,  if 
not  so  construed,  (2)  that  the  voluntary  assignment  was  void  under 
the  law  of  the  forurn,  and  business  was  carried  on  thereunder  for  the 
requisite  period,  and  was  constructively  the  business  of  the  bankrupt. 
We  are  of  opinion  that  neither  of  these  contentions  is  tenable.  The 
first  calls  for  a  departure  from  the  plain  meaning  of  the  language 
used  in  the  statute  to  make  it  applicable  to  conditions  which  may 
have  been  overlooked  in  framing  the  provision,  but  are  not  within 
the  terms  which  were  adopted ;  and  however  desirable  it  may  seem 
to  have  such  conditions  brought  within  its  scope,  to  cany  out  the 
general  intent  of  the  act,  the  correction  can  be  made  by  legislative 
amendment  only,  and  not  by  way  of  judicial  construction.  So  far  as 
applicable  here,  the  provision  confers  jurisdiction  over  bankrupts 
"who  have  had  their  principal  place  of  business"  within  the  terri- 
torial jurisdiction  "  for  the  preceding  six  months,  or  the  greater  portion 
thereof."  Whether  thus  considered  apart  from  the  provision  as  to 
residence  and  domicile,  or  as  an  entirety,  the  language  is  unam- 
biguous, if  not  aptly  chosen.  The  expression  "  greater  portion  "  of  a 
month  or  other  stated  period  is  frequenth*  used  as  an  approximate 
measure  of  time,  and  its  meaning  is  well  understood  as  the  major 
part  or  more  than  half  of  the  period  named.  No  justification  appears 
for  construing  like  terms  in  this  provision  otherwise  than  in  the  ordi- 
nary sense.  With  jurisdiction  dependent  upon  the  single  fact  of 
having  the  principal  place  of  business  within  che  district,  the  statute 
then  imposes  the  further  prerequisite  that  such  business  shall  have 
been  there  carried  on  for  more  than-  half  of  the  preceding  six  months. 
In  other  words,  the  limitation  is  made  with  reference  alone  to  the 
duration  of  the  business  in  the  district,  and  regardless  of  the  fact  that 
its  location  ma}'  be  changed  short  of  that  period,  and  thus  be  carried 
on  in  different  districts  without  exceeding  the  three  months  in  either, 
or  that  it  may  be  discontinued  entirely  without  reaching  the  time 
limited  in  any  one  ;  and  the  provisions  in  reference  to  domicile  and 
residence  are  equally  restricted,  except  for  the  distinction  as  to 
residence,  that  it  ma\'  be  retained  in  one  district  after  domicile  is 
changed  to  another.  With  this  meaning  clearly  conveyed  by  the 
language  of  the  statute,  the  policy  of  so  restricting  jurisdiction  is  not 
open  to  judicial  inquiry.  In  support  of  the  construction  for  which  the 
appellees  contend,  two  decisions  are  cited  whereby  section  11  of  the 
Bankrupt  Act  of  1867  (section  5014,  Rev.  St.)  is  so  construed,  — one 
by  Judge  Blatchford  (In  re  Foster,  3  Ben.  386,  Fed.  Gas.  No.  4,962), 
and  the  other  by  Judge  Lowell  (In  re  Goodfellow,  1  Low.  510,  Fed. 
Cas.  No.  5,536).  However  instructive  these  cases  may  be  in  interpret- 


SECT.  I.]  IN   RE   PLOTKE.  89 

ing  the  present  statute,  they  are  not  applicable  by  way  of  precedent, 
because  of  the  clear  diversity  in  the  respective  provisions.  Section  11 
of  the  former  act  gave  jurisdiction  over  petitions  filed  by  voluntary  bank- 
rupts to  "  the  judge  of  the  judicial  district  in  which  such  debtor  has 
resided  or  carried  on  business  for  the  six  months  preceding  the  time  of 
filing  such  petition,  or  for  the  longest  period  during  such  six  months  "  ; 
and  the  limitation  thus  Stated  was  held  to  mean  "  the  longest  space  of 
time  that  the  bankrupt  has  resided  or  carried  on  business  in  any  district 
during  the  six  months."  In  re  Foster,  .supra.  It  may  well  be  con- 
ceded that  the  language  of  that  provision  was  susceptible  of  no  other 
fair  interpretation;  that  "the  longest  period"  of  business  "during 
such  six  months"  was  clearly  implied,  and,  as  remarked  by  Judge 
Blatchford,  "  not  the  period  which,  mathematically  considered,  is  the 
greatest  part  of  the  six  months."  But  section  2,  subd.  1,  of  the  act  of 
1898  states  the  jurisdictional  requirements  in  terms  clearly  distinguish- 
able from  those  which  were  thus  construed,  namely,  that  a  principal 
place  of  business  shall  have  existed  within  the  district"  for  the  preced- 
ing six  months  or  the  greater  portion  thereof,"  thereby  establishing  as 
the  test  continuance  of  the  business  in  the  district  for  the  "greater 
portion"  of  the  six  months,  and  not  "  the  longest  period  "  of  business 
"  in  any  district  during  the  six  months."  This  departure  from  the 
provisions  of  the-prior  act  is  marked  both  in  the  change  of  words  and 
in  their  collocation,  and  is  not  a  mere  substitution  of  s\'non3'inous 
words,  as  argued  by  counsel.1 

The  further  contention  that  the  requisite  period  of  carrying  on  busi 
ness  appears  in  the  conceded  facts  of  the  voluntarj*  assignment  made 
January  3,  1899,  and  the  transactions  thereunder,  is  not  well  founded. 
The  question  discussed  on  the  argument,  whether  the  bankrupt  act 
made  the  assignment  void  ab  initio,  or  voidable  only  in  the  event  of 
an  adjudication  of  bankruptcy,  as  affecting  the  subsequent  possession, 
however  important  in  one  phase,  is  not  material  in  the  absence  of  a 
distinct  showing  that  the  business  was  continued  under  the  assign- 
ment for  more  than  one  month.  Where  jurisdiction  of  the  federal  courts 
is  made  dependent  upon  citizenship  or  other  specific  fact,  "the  pre- 
sumption in  every  stage  of  the  cause  is  that  it  is  without  their  jurisdic- 
tion, unless  the  contrary  appears  from  the  record."  Bors  v.  Preston, 
111  U.  S.  252,  255,  4  Sup.  Ct.  407,  28  L.  Ed.  419;  Railway  Co.  v. 
Swan,  111  U.  S.  379,  383,  4  Supt.  Ct.  510,  28  L.  Ed.  462.  The 
essential  fact  must  appear  affirmatively  and  distinctly,  and  "  it  is  not 
sufficient  that  jurisdiction  may  be  inferred  argumentatively."  Wolfe  v. 
Insurance  Co.,  148  U.  S.  389,  13  Sup.  Ct.  602,  37  L.  Ed.  493  ;  Parker  v. 
Ormsby,  141  U.  S.  81,  83,  11  Sup.  Ct.  912,35  L.  Ed.  654.  In  the  case 
at  bar  the  record  fails  to  show  that  the  business  was  carried  on  by  the 
assignee  for  any  definite  period,  and  the  proof  is  insufficient  to  confer 

*  Re  Williams,  128  Fed.  38;  Re  Tally,  156  Fed.  634,  ace. 

A  miMiiiii-r  of  the  Chickasaw  tribe  of  Indian.-  in  the  Indian  Territory  was  held 
properly  adjudicated  a  bankrupt  iu  lie  Renuie,  2  Am.  B.  K.  182  (Referee). 


90  IN  RE  PLOTKE.  [CHA*.  IL 

jurisdiction,  within  the  rule  stated,  even  on  the  assumption  that  the 
transactions  of  the  assignee  were,  in  legal  effect,  the  carrying  on  of 
business  by  the  assignor.  It  is  true  that  a  sale  of  the  assigned  property 
(a  stock  of  goods)  appears  to  have  been  made  by  the  assignee  as  an 
entirety,  thus  closing  out  the  business  ;  but  the  time  is  not  stated,  and 
it  may  well  be  inferred  from  the  testimony  that  such  sale  occurred  soon 
after  the  assignment  was  made.  The  mere  fact  that  proceeds  of  such 
sale  are  retained  in  the  hands  of  the  assignee  for  distribution  is  not 
carrying  on  business,  in  the  sense  of  the  statute.  The  active  business 
then  ceased,  and  the  liability  to  account  for  the  proceeds  is  no  more 
operative  to  save  the  limitation  than  would  be  the  case  if  the  business 
were  closed  out  directly  by  the  bankrupt,  either  with  or  without 
subsequent  payment  of  debts  out  of  the  proceeds.  No  evidence  being 
produced  to  overcome  the  presumption  of  fact  against  jurisdiction,  the 
question  of  the  legal  status  of  the  assignment  does  not  require  considera- 
tion. It  may  be  remarked,  however,  that  the  validity  of  the  assign- 
ment is  not  questioned  under  the  State  statute,  and  its  status  depends 
upon  a  construction  of  the  provisions  of  the  national  Bankruptcy  Act 
in  that  regard,  and  the  inquiry  is  not  one  which  is  governed  by  any  rule 
of  decision  in  the  State.  In  so  far,  therefore,  as  Harbaugh  v.  Costello, 
184  111.  110,  56  N.  E.  363,  passes  upon  the  effect  of  such  action  on 
voluntary  assignments  made  after  its  passage,  the  decision  is  not 
necessarily  controlling,  as  contended  by  counsel ;  but  that  question, 
when  presented,  will  call  for  independent  judgment,  in  the  light  of  all 
the  authorities.  In  Mayer  v.  Hellman,  91  U.  S.  496,  500,  23  L.  Ed. 
377,  a  different  construction  appears  to  have  been  placed  upon  the 
bankrupt  act  of  1867  ;  and  in  Simonson  v.  Sinsheimer,  95  Fed.  948, 
952,  37  C.  C.  A.  337,  342,  that  ruling  is  cited  as  equally  applicable 
under  the  present  act.  See  also,  Davis  v.  Bohle,  92  Fed.  325,  34 
C.  C.  A.  372 ;  In  re  Gutwillig,  92  Fed.  337,  34  C.  C.  A.  377 ;  In  re 
Gutwillig  (D.  C.)  90  Fed.  475,  478,  cited  with  approval  in  West  Co. 
v.  Lea,  174  U.  S.  590,  596,  19  Sup.  Ct.  836,  43  L.  Ed.  1098. 

We  are  of  opinion,  therefore,  that  the  District  Court  was  without  juris- 
diction of  the  cause  alleged  in  the  petition,  and  the  question  whether 
the  want  of  personal  service  was  waived  by  appearance  does  not  call 
for  solution.  The  order  of  the  District  Court  is  reversed,  accordingly, 
with  direction  to  dismiss  the  petition  for  want  of  jurisdiction.1 

1  The  Bankruptcy  Court  has  jurisdiction  to  decide  an  issue  of  fact  in  regard  to  a 
matter  essential  to  its  jurisdiction;  and  its  decision  is  conclusive.  Denver  First  Nat. 
Bank  v.  Klug,  186  U.  S.  202,  204. 


SECT.  I.]  MCCONNELL  v.  KELLEY.  91 


McCONNELL  v.   KELLEY. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  NOVEMBER  6,  7, 
1884- JANUARY  13,  1885. 

[Reported  in  138  Massachusetts,  372.] 

BILL  in  equity  to  vacate  and  set  aside  a  warrant  issued  by  the  judge 
of  insolvency  for  Essex  County,  upon  the  petition  of  the  defendant 
Kelle}'.  Hearing  before  DEVENS,  J.,  who  reserved  the  case  for  the 
consideration  of  the  full  court.  The  facts  appear  in  the  opinion. 

B.  N.  Johnson  (G.  B.  Ives  with  him),  for  the  plaintiffs. 

W.  Gaston  <fc  W.  A.  Knowlton,  for  the  defendants. 

MORTON,  C.  J.  Our  insolvent  law  provides  that  "an  inhabitant  of 
this  State  owing  debts  contracted  while  such  inhabitant"  may  apply 
to  the  judge  of  the  court  of  insolvency  of  the  county  within  which  he 
resides  for  the  benefit  of  the  insolvent  law,  and,  if  it  appears  that  he 
owes  debts  to  the  amount  of  not  less  than  $200,  the  said  judge  is  forth- 
with to  issue  a  warrant :  it  also  provides  that,  for  certain  causes  as- 
signed, creditors  may  commence  involuntary  proceedings  against  a 
debtor,  if  he  "  has  resided  in  the  State  within  one  year."  Pub.  Sts. 
c  157.  In  the  case  before  us,  the  defendant  Kelley  duly  filed  his  peti- 
tion to  the  judge  of  insolvency  for  Essex  County,  who  thereupon  issued 
a  warrant  to  take  possession  of  his  property ;  and  the  plaintiffs,  who 
are  creditors  having  attachments  of  said  Kelley's  property,  thereupon 
brought  this  bill  to  vacate  and  set  aside  the  warrant. 

The  justice  of  this  court  who  heard  the  case  found,  as  a  fact,  that, 
before  filing  his  petition,  Kelley  moved  from  the  State  of  New  Hamp- 
shire into  Metlmen  in  the  county  of  Essex,  and  "  became  a  resident  of 
this  State." 

The  plaintiffs  have  argued  that  there  is  not  sufficient  evidence  to 
show  that  Kelley  had  become  an  inhabitant  of  this  State  ;  but  this  is 
not  open  to  them  upon  this  report.  The  evidence  is  not  reported  in 
full,  and  we  therefore  cannot  revise  the  finding  of  the  justice  who  heard 
the  case.  Throughout  the  statute  the  words  "resides"  and  "resided" 
are  constantly  used  as  describing  inhabitanc}*,  and  generally  the  word 
"resident"  in  a  legal  sense  is  synonymous  with  inhabitant.  We  cannot 
doubt  that  the  presiding  justice  used  it  in  this  sense;  and  that  the  ques- 
tions intended  to  be  presented  by  the  report  were  whether  Kelley, 
although  he  removed  to  and  became  an  inhabitant  of  this  State,  is  de- 
prived of  the  benefit  of  the  insolvent  law,  because  the  sole  purpose  of 
Ins  change  of  domicil  or  inhabitancy,  and  of  contracting  debts  in  this 
State,  was  that  he  might  have  the  benefit  of  such  law. 

A  man  has  a  right  to  change  his  domicile  for  an}*  reasons  satisfactory 
to  himself.  In  determining  whether  there  has  been  such  a  change  from 
one  place  to  another,  the  test  is  to  inquire  whether  he  has  in  fact  re- 
moved his  home  to  the  latter  place  with  the  intention  of  making  it  his 


92  McCONNELL   V.    KELLEY.  [CHAP.  II. 

residence  permanently,  or  for  an  indefinite  time.  If  he  has,  he  loses  his 
old  domicile,  and  acquires  a  new  one  with  all  its  rights  and  incidents  ; 
and  the  law  does  not  inquire  into  the  purposes  or  motives  which  in- 
duced him  to  make  such  change.  It  may  be  because  he  prefers  the 
laws  of  the  new  place  of  domicile,  or  because  he  can  diminish  his  taxes 
and  other  burdens,  or  because  he  desires  to  bring  a  suit  in  a  court 
which  would  not  otherwise  have  jurisdiction.  Thayer  v.  Boston,  124 
Mass.  132  ;  Case  v.  Clark,  5  Mason,  70.  His  status  as  an  inhabitant 
depends  upon  the  fact  that  he  has  made  a  change  of  his  home,  and  not 
upon  the  motives  or  reasons  which  influenced  him  to  do  so. 

In  the  case  at  bar,  therefore,  it  being  found  as  a  fact  that  the  re- 
spondent Kelley  had  become  a  resident  of  this  State,  he  had  the  right 
to  apply  for  the  benefit  of  the  insolvent  laws,  although  his  sole  purpose 
in  making  the  change  of  his  domicile  was  to  enable  himself  to  do  so. 

It  also  appeared  at  the  hearing,  that  most  of  the  debts  due  by  Kelle}", 
though  due  largely  to  residents  of  Massachusetts,  were  contracted  while 
he  was  an  inhabitant  of  New  Hampshire  ;  and  that  after  he  removed  to 
Massachusetts,  and  before  he  filed  his  petition  in  insolvency,  he  con- 
tracted debts  in  this  State  of  between  $200  and  $300,  "  for  the  purpose 
of  owing  debts  contracted  in  Massachusetts,  and  thus  enabling  himself 
to  commence  proceedings  in  Massachusetts  ; "  and  the  plaintiffs  con- 
tend that  this  ousts  the  jurisdiction  of  the  court  of  insolvency. 

The  jurisdiction  of  the  court  depends  upon  the  facts,  that  the  appli- 
cant is  an  inhabitant  of  the  State,  and  owes  some  debts  contracted 
while  such  inhabitant.  Pub.  Sts.  c.  157,  §  16;  Breed  v.  Lyman,  4 
Allen,  170.  These  facts  being  proved,  the  jurisdiction  attaches,  and 
we  do  not  think  the  judge  of  insolvency  can  inquire  into  the  circum- 
stances under  which  the  debts  were  contracted,  or  the  motives  and 
purposes  of  the  applicant  in  contracting  them.  Nor  can  he  inquire 
whether  the  debts  which  are  the  basis  of  his  jurisdiction  are  debts 
which  will  be  barred  by  the  discharge.  He  has  no  jurisdiction  to  make 
such  inquiry.  He  can  only  inquire  whether  there  are  bona  fide  debts 
contracted  while  the  applicant  was  an  inhabitant  of  the  State. 

The  facts  in  this  case  show  that  there  were  such  debts.  If  the  ap- 
plicant had  an}'  improper  purpose  in  contracting  them,  the  creditors 
were  not  participants  in  it.  Their  debts  are  just  and  bona  fide  debts, 
which  are  provable  under  the  insolvenc}'  proceedings ;  and  we  are  of 
opinion  that  the  court  of  insolvency  had  jurisdiction  to  issue  the  war- 
rant, although  the  insolvent  debtor  contracted  them  for  the  purpose  of 
putting  himself  in  a  position  which  enabled  him  to  take  the  benefit  of 
the  insolvent  law.  .Bill  dismissed.1 

1  The  rule  in  regard  to  giving  a  federal  court  jurisdiction  of  a  cause  by  change  of 
citizenship  is  the  same.  In  Morris  v.  Gilmer,  129  U.  S.  315,  328,  Ilarlan,  J.,  de- 
livering the  opinion  of  the  court,  said  :  "  It  is  true,  as  contended  by  the  defendant, 
that  a  citizen  of  the  United  States  can  instantly  transfer  his  citizenship  from  one  State 
to  another,  Cooper  ??.  Galbraith,  3  Wash.  C.  C.  546,  554,  and  that  his  right  to  sue  in 
the  courts  of  the  United  States  is  none  the  less  because  his  change  of  domicile  was  in- 
duced by  the  purpose,  whether  avowed  or  not,  of  invoking,  for  the  protection  of  his 


SECT.  II.]  IN   RE   BKICE.  93 

SECTION  II. 

INFANTS  AND  MARRIED  WOMEN. 

IN  RE  BR1CE. 

DISTRICT  COURT  OF  THE  UNITED  STATES  FOR  THE  SOUTHERN  DISTRICT! 
OF  IOWA,  MAY  4,   1899. 

[Reported  in  93  Federal  Reporter,  942.] 

WOOLSON,  District  Judge.  Carl  S.  Brice  having  filed  bis  petition  in 
voluntary  bankruptcy,  the  petition  was  regularly  referred  to  George 
W.  Seevers,  Esq.,  as  referee  in  bankruptcy.  Upon  April  3,  1899,  said 
referee  formally  adjudicated  said  Brice  to  be  a  bankrupt,  and  duly  gave 
notice  for  first  meeting  of  creditors.  Shortly  prior  to  the  day  fixed  for 
said  first  meeting,  Wyman,  Partridge  &  Co.,  claiming  to  be  creditors 
of  said  Brice,  presented  to  the  judge  of  this  court  their  petition, 
wherein  they  sought  vacation  of  said  adjudication.  The  grounds  on 
which  such  vacation  was  sought  were,  in  substance,  that  at  date  of 
such  adjudication  said  Brice  was  "a  minor,  and  under  the  age  of 
twenty-one  years,  and  not  '  a  person '  within  the  intent  of  the  bank- 
ruptc}'  statute,"  and  therefore  not  entitled  to  the  benefits  of  said 
statute ;  that  such  fact  was  not  disclosed  by  the  petition  filed  by 
him,  nor  upon  said  adjudication.  An  amendment  to  such  petition 
for  vacation  alleges  as  further  ground  that  this  court  has  not  jurisdic- 
tion to  entertain  said  Brice's  petition,  because  said  Brice,  up  to  the 
filing  of  his  petition,  continuously  had  his  domicile  and  residence 
and  principal  place  of  business  within  the  Northern  District  of  this 
State.  To  this  petition  for  vacation  of  order  of  adjudication  Brice 
files  his  answer,  admitting  that  he  is  under  twent3'-one  years  of  age, 
but  averring  that  when  he  was  nineteen  \-ears  old  he  was  manumitted 
by  his  father,  and  that  for  more  than  six  months  before  the  filing  of 
his  said  petition  in  bankruptcy,  and  at  the  date  of  such  filing,  he  was 
openly  engaged  in  business  as  a  merchant  in  Mahaska  Count}',  in  this 
district. 

Counsel  for  said  Brice,  for  said  petitioning  creditors,  as  well  as  for 
other  creditors,  have  been  heard  orally  and  by  briefs.  Upon  the  hear- 

rights,  the  jurisdiction  of  a  federal  court.  As  said  hy  Mr.  Justice  Story,  in  Briggs 
v.  French,  2  Sumner,  251,  256,  '  if  the  new  citizenship  is  really  and  truly  acquired, 
his  right  to  sue  is  a  legitimate,  constitutional,  and  legal  consequence,  not  to  be  im- 
peached hy  the  motive  of  his  removal.'  Manhattan  Ins.  Co.  v.  Broughton,  109  U.  S. 
121,  125  ;  Jones  v.  League,  18  How.  76,  81.  There  must  be  an  actual,  not  pretendi-d. 
change  of  domicile  ;  in  other  words,  the  removal  must  be  'a  real  one,  animo  manendi, 
and  not  merely  ostensible.'  Case  r.  Clark,  5  Mason,  70.  The  intention  and  the  act 
must  concur  in  order  to  effect  such  a  change  of  domicile  as  constitutes  a  change  of 
citizenship." 


94  IN   RE   BKICE.  [CHAP.  II. 

ing  said  Brice  was  examined  under  oath.  The  following  facts  appear : 
In  January,  1898,  the  father  of  said  Brice  executed  an  instrument, 
which  follows  the  general  form  and  contains  the  substance  of  what  is 
generally  accepted  as  a  manumission  paper.  It  was  conceded  on  the 
hearing  that  such  paper  is  amply  sufficient,  as  between  father  and  son, 
to  accomplish  the  purpose  for  which  it  was  intended.  This  paper  was 
published  in  one  of  the  principal  newspapers  where  the  father  and  son 
resided.  Since  said  date  of  manumission,  and  up  to  the  filing  of  his 
petition  herein,  said  C.  S.  Brice  was  employed  in  his  father's  store  in 
Tama  Count}',  Iowa,  as  a  clerk,  upon  a  monthly  salary.  Said  Brice 
also  opened  up,  in  Oskaloosa,  Mahaska  County,  Iowa,  a  store,  for 
general  merchandise  purposes,  and  had  maintained  the  same  for  over 
six  months  prior  to  filing  of  his  said  bankruptcy  petition.  He  was 
very  seldom  at  his  Oskaloosa  store,  and  in  fact  took  no  leading  part  in 
the  management  or  details  of  business  therein.  His  brother-in-law, 
one  Barber,  was  in  charge  as  manager,  made  the  purchases  of  goods, 
made  whatever  payments  thereon  were  made,  engaged  those  employed 
in  said  store,  and  attended  to  obtaining  the  lease  of  the  store  premises  ; 
but  the  lease  was  taken  in  the  name  of  said  Brice,  and  all  purchases 
were  also  made  in  said  Brice's  name.  There  is  presented  herein  no 
claim  that  any  fraud  was  perpetrated  or  attempted  in  the  matters 
named.  All  the  creditors  dealt  with  said  store  as  being  the  property 
of  said  Brice.  The  debts  scheduled  in  the  petition  for  bankruptcy 
aggregate  $24,608.10.  The  stock  of  goods  are  scheduled  at  an 
aggregate  of  $12,350. 

First,  as  to  jurisdiction :  Without  determining,  but  assuming,  that 
this  point  is  here  properly  presented,  I  find  the  facts  proven  sustain 
such  jurisdiction  in  this  court.  Although  Brice  unquestionably  had 
his  domicile  and  residence  without  this  district,  yet  his  business  with- 
out the  district  was  that  of  a  mere  clerk  ;  within  this  district,  and  for 
the  entire  period  of  six  months  prior  to  filing  his  petition,  he  was 
carrying  on  the  business  of  a  merchant  upon  such  a  scale  as  that  his 
scheduled  debts  for  merchandise  and  store  expenses  aggregated  at 
filing  of  petition  over  $20,000.  Whether  he  might  have  filed  his 
petition  in  the  district  of  his  residence  is  not  the  question  here  to  be 
decided.  The  statute  (30  Stat.  545,  c.  541,  §  2,  par.  1)  confers  upon 
this  court,  as  a  court  of  bankruptcy,  jurisdiction  "  to  adjudge  persons 
bankrupt  who  have  had  their  principal  place  of  business,  resided,  or 
had  their  domicile  within  its  territorial  jurisdiction  for  the  preceding 
six  months,  or  the  greater  portion  thereof."  Brice  has  elected  to  file 
his  petition  in  bankruptcy  in  the  district  of  his  principal  place  of 
business.  If  he  is  a  "person"  within  the  meaning  of  the  statute,  this 
court  has  jurisdiction.  I  do  not  deem  it  necessary  to  here  determine 
the  question  presented  by  counsel  for  Brice  that  the  plea  of  minority  is 
a  plea  personal  to  the  bankrupt  in  this  proceeding,  but  will  assume,  for 
the  purpose  of  this  hearing,  that  a  creditor  may  properly  present  it. 
Section  4,  par.  b,  of  the  present  bankruptcy  statute  provides  that 


SECT.  II.]  IN    RE    BRICE.  95 

"  any  person,  except  a  corporation,  shall  be  entitled  to  the  benefits 
of  this  act  as  a  voluntary  bankrupt."  By  section  1,  cl.  ,19,  it  is  pro- 
vided that  the  word  "'persons'  shall  include  corporations,  except 
where  otherwise  provided,  and  officers,  partnerships,  and  women."  No 
part  of  this  statute  appears  expressly  to  provide  for  the  case  of  minors. 
In  re  Derb\-,  8  Ben.  118  Fed.  Cas.  No.  3,815,  is  cited  by  counsel  for 
creditors  petitioning  for  vacation  as  a  well-considered  case,  wherein 
Judge  B  latch  ford  (then  district  judge,  but  subsequently  an  associate 
justice  of  the  Supreme  Court  of  the  United  State)  decided  that  minors, 
in  respect  to  their  general  contracts,  are  not  embraced  within  the  pro- 
visions of  the  Bankruptcy  Act  of  1867,  as  subjects  of  voluntary  or 
involuntary  bankruptc}'.  Opposing  counsel  have  cited  In  re  Book, 
3  McLean,  317,  Fed.  Cas.  No.  1,537,  wherein  it  is  decided,  in  answer 
to  the  question  "  whether  the  infancy  of  the  applicant  is  good  ground 
for  opposition  to  his  discharge  as  a  bankrupt,"  that  "an  infant  may 
claim  the  benefit  of  the  bankrupt  law."  This  last-cited  case,  while 
given  as  the  "opinion  of  the  court"  on  questions  certified  to  the  Cir- 
cuit Court  from  the  District  Court,  under  the  provisions  of  the  Bank- 
rupt Act  of  1841,  appears  to  have  been  answered  on  general  principles, 
and  not  uppn  any  special  provisions  of  that  act,  and  to  be  the  opinion 
of  Justice  McLean,  then  a  member  of  the  Supreme  Court  of  the  United 
States.  In  neither  of  these  cases,  apparently  so  contrary  in  decision 
reached,  is  there  reference  as  a  controlling  factor  to  any  special  pro- 
vision of  the  acts  in  force  at  dates  of  such  decisions.  Yet  there  are 
apparent  principles  in  common  recognized  as  underlying  these  de- 
cisions. In  the  course  of  the  opinion  Judge  Blatchford  states,  ap- 
parently as  the  reason  leading  to  the  conclusion  reached  by  him  : 

"  The  general  contracts  of  an  infant  having  no  force  if  disaffirmed 
by  him  after  attaining  his  majority,  it  is  idle  for  him  to  set  forth,  in 
a  voluntary  case,  a  schedule  of  his  creditors,  and  idle  for  them  to  prove 
their  debts  during  .his  infancy,  for  the  whole  proceedings  must  be  in 
vain  if  the  debts  are  disaffirmed  by  "him  after  he  attains  his  majorit}'." 

Towards  the  close  of  his  opinion  he  states  :  — 

"It  is  not  intended  to  express  an  opinion  as  to  whether  or  not  an 
infant  may  not  voluntarily  petition  in  respect  of  contracts  for  which  he 
is  liable,  such  as  debts  for  the  value  of  necessaries." 

While  Justice  McLean  states  :  — 

"  An  infant  is  bound  to  pay  certain  debts.  The  bankrupt  law 
extends  its  benefits  to  all  persons  who  are  in  a  state  of  bankruptcy, 
without  exception  as  to  persons.  Fiduciary  debtors  only  are  ex- 
cepted.  .  .  .  When  an  infant  brings  his  case  within  the  bankrupt 
law,  the  law  vests  his  property  in  the  assignee." 

Apparently,  therefore,  if  the  infant  is  liable  for  the  debts  he 
schedules,  he  may,  so  far  as  the  decisions  above  cited  have  expressly 
decided,  avail  himself  of  the  benefits  of  the  bankrupt  law,  in  the  ab- 
sence in  such  law  of  any  provisions  to  the  contrary.  And  the  point 
decided  in  Re  Derby  must  be  regarded  as  applying  adversely  to  the 


96  IN   RE   BEIGE.  [CHAP.  II. 

right  of  minors  to  be  adjudged  bankrupts  only  as  to  debts  which  the 
minor  had  the  legal  right  to  disaffirm.  The  industry  of  counsel  has 
brought  to  the  court  only  these  two  decisions  as  directly  bearing  on 
the  question  here  presented.  The  contention  presented  in  the  pending 
matter  may  be  regarded  as  closely  analogous  to  the  question  presented 
under  former  bankruptcy  statutes  with  reference  to  whether,  and,  if  at 
all,  to  what  extent,  such  former  statutes  extended  their  provisions  to 
married  women.  The  cases  are  numerous  wherein  the  courts  were 
called  to  determine  how  far  the  recognized  legal  disabilities  of  married 
women  affected  the  application  of  the  statute.  In  the  pending  matter 
the  legal  disability  is  alleged  as  applying  to  a  minor.  Without 
attempting  an  exhaustive  consideration  of  the  decisions  relating  to 
the  application  of  former  bankruptcy  laws  to  married  women,  a  few 
may  profitably  be  here  considered.  In  Re  Slichter,  Fed.  Gas.  No. 
12,943,  Judge  Nelson,  in  1869,  passed  directly  on  the  question,  arising 
in  the  district  of  Minnesota,  over  which  this  distinguished  judge  so  long 
presided,  as  to  the  status  of  a  married  woman  under  the  act  of  1867. 
Catharine  Slichter  and  her  son  had  been  trading  under  the  firm  name 
of  Slichter  &  Son.  This  decision  recognizes  that  the  statutes  of  that 
State  had  relieved  married  women  of  mam"  of  the  disabiliti.es  to  which 
the}*  were  theretofore  subjected,  but  that  Mrs.  Slichter  could  make  no 
contract,  in  the  course  and  business  of  said  firm,  except  as  authorized 
by  the  laws  of  that  State.  "  There  being  no  evidence  that  Mrs.  Slichter 
was  engaged  in  business  b}-  virtue  of  any  authority  conferred  by  the 
statute,  she  could  avail  herself  of  her  coverture  to  defeat  the  debt  which 
was  the  basis  of  the  bankruptcy  proceedings." 

In  re  Kinkead,  3  Biss.  405,  Fed.  Gas.  No.  7,824,  was  decided  in 
1873  b}"  Judge  Blodgett.  This  decision  with  exhaustive  clearness 
applies  the  statutes  of  Illinois  regarding  the  legal  status  of  married 
women  as  to  propertj-  rights.  J.  D.  Kinkead  and  his  wife,  under  the 
firm  name  of  Kinkead  &  Co.,  were  carrying  on  a  partnership  business 
as  traders.  Kinkead  &  Co.  and  J.  D.  Kinkead,  by  proceedings  in 
involuntary  bankruptcy,  had  been  adjudicated  bankrupts.  An  indi- 
vidual creditor  of  J.  D.  Kinkead  sought  to  have  his  debt  established 
against  the  firm  assets,  on  the  ground  that  the  contract  of  co-partner- 
ship was  void  and  inoperative  by  reason  of  'the  inabilit}'  of  the  wife  to 
make  a  binding  contract.  After  a  full  and  clear  statement  of  the 
statute  of  the  State  relating  to  the  questions  involved,  Judge  Blod- 
gett, in  closing  his  opinion,  states :  — 

"  The  fact  that  Mrs.  Kinkead  was  not  individually  adjudged  a  bank- 
rupt does  not,  in  my  view,  change  the  aspect  of  the  case.  Such  an 
adjudication  could  only  be  necessary  for  the  purpose  of  reaching  her 
individual  property,  if  she  has  any,  which  is  not  alleged  ;  and  she  may 
yet  be  so  adjudged  if  it  becomes  necessary  in  the  course  of  these 
proceedings." 

The  decision  reached  above  was  subsequently  affirmed  by  Circuit 
Judge  Drummond  (1874),  before  whom  the  case  was  taken  on  review. 


SECT.  II.]  IN   RE   BRICE.  97 

In  re  Collins,  3  Biss.  415,  Fed.  Cas.  No.  3,006,  was  decided  in  1873 
by  the  same  distinguished  jurist.  In  this  case  was  directly  presented 
the  question  whether  a  married  woman  was  entitled,  on  her  own  petition, 
to  receive  the  benefits  of  the  bankruptc}-  statute.  The  case  arose  upon 
the  motion  of  a  creditor  to  set  aside  and  dismiss  the  bankruptcy  pro- 
ceedings after  adjudication  had  thereon.  After  referring  to  the  dis- 
cussion had  in  the  Kinkead  Case,  supra,  Judge  Blodgett  says : 

"  I  think  the  principles  I  have  laid  down  in  the  Kinkead  Case  that  a 
married  woman  could  lawfully  engage  in  business,  and  incur  liabilities, 
justify  her  in  coming  to  this  court,  and  the  court  in  taking  jurisdiction 
of  the  case." 

In  re,  Goodman,  5  Biss.  401,  Fed.  Cas.  No.  5,540,  was  decided  by 
Judge  Gresham  in  1873,  while  district  judge  of  the  district  of  Indiana. 
Petition  was  filed  against  Rachel  Goodman,  a  married  woman,  alleging 
that  she  had,  in  that  district,  been  for  3'ears  engaged  in  business  in  her 
own  name  as  a  trader,  and  had  committed  an  act  of  bankruptcy  (de- 
scribing it)  within  the  last  six  months,  etc.  The  case  came  up  on  a 
motion  of  Mrs.  Goodman  to  dismiss  the  bankruptc}r  proceedings.  In 
his  decision  Judge  Gresham  states  :  — 

"  Whether  this  proceeding  can  be  maintained  depends  upon  how  far 
the  legislature  of  Indiana  has  gone  in  changing  the  common-law  rights 
of  married  women." 

After  discussing  and  summarizing  the  Indiana  statutes,  the  opinion 
concludes :  — 

"The  rule,  then,  still  being  that  a  married  woman  cannot  contract, 
and  the  power  to  do  so  being  an  exception  to  the  rule,  and  the  petition 
failing  to  show  that  Mrs.  Goodman  was  possessed  of  &ny  separate 
property  or  means  with  which  she  was  carrying  on  her  business,  it 
follows  that  she  cannot  be  adjudged  a  bankrupt.  The  petition  is 
therefore  dismissed." 

An  extended  annotation  to  the  case  of  In  re  Kinkead,  14  Fed.  Cas. 
p.  602,  closes  with  what  appears  to  be  a  correct  conclusion  based  on 
the  cases  above  cited  and  others  cited  in  such  annotation  :  — 

"  Impossible  as  it  may  be  to  reconcile  the  decisions  on  the  general 
question  of  the  rights  and  liabilities  of  married  women,  the  duty  of  the 
federal  courts  in  administering  the  bankrupt  act  would  seem  to  be 
simply  to  determine  the  status  of  a  married  woman  under  the  existing 
laws  of  the  State  where  the  jurisdiction  is  to  be  exercised,  and  adminis- 
ter the  act  upon  the  basis  of  the  principles  thus  discovered.  The  foun- 
dation of  bankruptcy  proceedings  is  indebtedness  ;  but  the  bankruptcy 
net  does  not  make  any  new  standard  of  liabilit}1 ;  it  simply  operates 
upon  those  already  existing.  The  application  of  the  act  to  married 
women  depends,  clearl}',  not  upon  their  rights,  but  their  liabilities ;  and 
those  liabilities  are  determined  by  the  law  of  the  forum  where  the  juris- 
diction is  invoked." 1 

1  For  further  American  authorities,  see  the  note  referred  to.  Also  for  English 
authorities  prior  to  the  statute  of  1870  (33  &  34  Viet.  c.  93)  making  a  married  woman 


98  IN   RE   BRICE.  [CHAP.  II. 

While  not  directly  applicable  herein,  an  interesting  case  is  In  re 
Cotton,  Fed.  Cas.  No.  3,269,  wherein  Judge  Judson,  of  the  district  of 
Connecticut,  applies  the  bankruptcy  statute,  as  in  force  in  1843,  to  the 
State  statutes  of  that  State,  and  makes  such  application  the  decisive 
test  whereunder  he  dismisses  the  application  upon  voluntary  petition. 

No  good  reason  appears  to  me  why  the  test  above  laid  down  ma}' 
not  be  applied  in  determining  to  what  extent,  if  at  all,  the  present 
bankruptcy  statute  extends  its  benefits  to  minors.  Throughout  each 
of  the  cases  above  cited  runs  the  query,  is  the  person  seeking  or 
sought  to  be  adjudged  a  bankrupt  liable  for  his  contracts,  or  for 
what  is  commonly  understood  to  be  his  debts?  Wherever  this  ques- 
tion is  answered  in  the  affirmative,  the  decision  applies  the  bankruptcy 
statute,  while,  if  answered  in  the  negative,  the  application  of  the  bank- 
ruptcy statute  is  denied.  Turning,  then,  to  the  statutes  of  Iowa,  we 
find  the  rights  and  liabilities  of  minors,  so  far  as  affected  in  the  pend- 
ing matter,  as  defined  by  the  Iowa  Code  of  1897,  as  follows  :  — 

"  Sec.  3,188.  The  period  of  minority  extends  in  males  to  the  age  of 
twenty-one  years,  and  in  females  to  that  of  eighteen  years ;  but  all 
minors  attain  their  majority  by  marriage. 

"  Sec.  3,189.  A  minor  is  bound  not  only  by  contracts  for  necessa- 
ries, but  also  by  his  other  contracts,  unless  he  disaffirms  them  within  a 
reasonable  time  after  he  attains  his  majority,  and  restores  to  the  other 
part}7  all  money  or  property  received  by  him  by  virtue  of  the  contract, 
and  remaining  within  his  control  at  any  time  after  his  attaining  his 
majority,  except  as  otherwise  provided. 

"  Sec.  3,190.  No  contract  can  be  thus  disaffirmed  where,  on 
account  of  the  minor's  own  misrepresentations  as  to  his  majority,  or 
from  his  having  engaged  in  business  as  an  adult,  the  other  party  had 
good  reason  to  believe  him  capable  of  contracting." 

How  far,  if  at  all,  the  matter  pending  is  affected  by  manumission  by 
the  father,  will  not  now  be  considered  ;  that  question  not  being  deemed 
necessary  to  the  decision  reached  herein.  The  alleged  bankrupt  was 
submitted  to  examination  under  oath  on  the  hearing,  and  his  testimony 
is  before  the  court,  together  with  the  documentary  evidence  presented. 
His  minority  is  conceded.  There  appear  no  express  misrepresenta- 

liable  to  be  sued  for  and  her  separate  property  liable  to  satisfy  debts  contracted  before 
her  marriage.  Under  this  act  it  was  held  that  at  least  unless  it  were  shown  that  a 
married  woman  had  separate  property  she  could  not  be  made  a  bankrupt.  Ex  parte 
Holland,  9  Ch.  App.  307.  Nor  could  she  be  made  bankrupt  in  respect  of  debts  con- 
tracted after  marriage,  though  she  had  a  separate  estate,  and  though  by  the  doctrines 
of  equity  such  estate  was  liable  for  such  debts.  Ex  parte  Jones,  12  Ch.  D.  484  (C.  A.). 
The  Married  Women's  Property  Act  of  1882  (45  &  46  Viet.  c.  75)  greatly  increased 
the  capacity  to  contract  and  consequently  the  liability  of  married  women ;  and  a 
woman  "  carrying  on  a  trade  separately  from  her  husband  "  was  expressly  made 
liable  to  bankruptcy.  But  it  has  been  held  that  this  case  expressly  provided  for  is 
the  only  one  in  which  a  married  woman  is  so  liable.  Re  Gardiner,  20  Q.  B.  D.  249  ; 
Re  a  Debtor,  [1898]  2  Q.  B.  576  (C.  A.).  And  if  the  business  is  even  partially 
under  the  control  of  the  husband,  the  wife  cannot  be  made  a  bankrupt.  Re  Helsby, 
«3  L.  J.  Q.  B.  (N.  8.)  261. 


SECT.  II.  1  IN   RE   BRICE.  99 

tions  by  him  as  to  his  minority.  The  petitioning  creditors  made  no 
inquiry  touching  this  point.  No  question  appears  to  ,have  arisen  in 
their  minds  as  to  his  being  of  age.  They  dealt  with  him  as  one  of 
full  age.  He  was  engaged  in  business  as  an  adult.  From  his  having 
thus  been  engaged,  the  evidence  clearly  shows  that  these  creditors  had 
good  reason  to  believe,  and  did  believe,  Brice  was  capable  of  contract- 
ing. There  is  thus  met  every  requirement,  essential  under  the  Iowa 
Code,  to  place  the  debts  or  claims  held  by  these  creditors  beyond  the 
power  of  Brice  to  disaffirm,  when  he  shall,  in  the  coming  December, 
have  reached  the  age  of  twenty-one.  He  cannot  now  or  then,  under 
the  Iowa  statutes,  disaffirm  these  debts  ;  and  thus  lie  is  liable  therefor, 
as  though  at  the  time  of  his  contracting  them  he  had  attained  his  ma- 
jorit}-.  This  conclusion  satisfies  the  reasons  underlying  the  above-cited 
cases  as  to  married  women,  and  it  is  not  antagonistic  to  either  of  the 
cases  cited  as  to  minors,  as  above  interpreted,  and  it  appears  just  to  all 
concerned  in  the  results  reached  under  it. 

It  becomes  unnecessary  formally  to  consider  the  fact,  appearing  on 
the  hearing,  that  the  petitioning  creditors  herein  had  instituted,  and 
are  now  maintaining,  in  the  State  court,  action  as  for  debt  against  said 
Brice  on  the  same  claims  which  they  set  up  in  their  petition  herein  as 
giving  them  the  right  to  a  vacation  of  the  adjudication  of  bankruptcy. 
Such  action  in  the  State  court  is  aided  by  attachment  against  the  stock 
of  merchandise,  which,  if  the  adjudication  be  sustained,  will  pass  to 
the  trustee.  That  such  action,  if  prosecuted  to  judgment,  must  result 
in  recovery  for  such  creditors  against  Brice,  is  beyond  question,  under 
the  evidence  before  me.  The  result  would  then  be,  if  the  petition  of 
such  creditors  be  sustained,  and  bankruptcy  proceedings  dismissed, 
that  for  the  very  debts,  on  account  of  which,  in  these  bankruptcy  pro- 
ceedings, such  creditors  claim  Brice  cannot  maintain  these  proceedings 
because  he  is  not  liable  therefor,  they  would,  in  their  action  in  the  State 
court,  recover  judgment,  because  Brice  is,  under  the  Iowa  statute, 
powerless  to  disaffirm,  and.  consequently,  liable  therefor.  In  such  case 
the  writ  of  attachment  issued  at  their  instance  would  result  in  paying 
their  claim  in  full,  to  the  disadvantage  of  other  creditors,  who  are  con- 
tent to  accept  that  equality  of  distribution  of  assets  whose  accomplish- 
ment is  the  primary  object  of  the  bankruptc}1  statute. 

Having  reached  the  conclusion  above  announced,  it  follows  that  the 
petition  of  Partridge,  Wyman  &  Co.,  for  vacation  of  order  of  adjudica- 
tion of  said  Carl  S.  Brice  as  a  bankrupt  must  be  denied  and  dismissed, 
and  at  their  costs.2 

2  As  a  general  rule  an  infant  cannot  be  made  bankrupt  either  on  a  creditor's  peti- 
tion or  his  own.  Ex  parte  Sydebotham,  1  Atk.  146 ;  Rex  v.  Cole,  1  Ld.  Raym.  443 ; 
Ex  parte  Henderson,  4  Ves.  1 63 ;  Ex  parte  Layton,  6  Ves.  434,  440 ;  Ex  parte  Bar- 
wis,  6  Ves.  601  ;  Ex  parte  Moule,  14  Ves.  603;  Ex  parte  Adam,  1  Ves.  &  B.  493,  494; 
Stevens  v.  Jackson,  4  Camp.  164 ;  O'Brien  v.  Carrie,  3  Car.  &  P.  283  ;  Belton  v. 
Hodges,  9  Bing.  365 ;  Ex  parte  Jones,  18  Ch.  D.  109  (C.  A.) ;  Re  Rainey,  3  L.  R.  Ir. 
459  ;  Re  Dunnigan,  95  Fed.  Rep.  428;  Re  Eidemiller,  105  Fed.  Rep.  595. 

In  Ex  parte  Jones,  however,  the  question  was  left  open  whether  an  infant  owing 


100  IN  RE   FUNK.  [CHAV.  II. 


SECTION  in. 

INSANE   PERSONS. 

IN  RE  FUNK. 

DISTRICT  COURT  OF  THE  UNITED  STATES  FOR  THE  NORTHERN  DISTRICT 
OF  IOWA,  APRIL  26,  1900. 

[Reported  in  101  Federal  Reporter,  244.] 

SHIRAS,  District  Judge.  .  .  .  The  answer  presents  the  question  whether 
Funk  can  be  adjudged  a  bankrupt  for  acts  done  by  him  after  the  date 
of  the  adjudication  of  insanity,  and  the  appointment  of  a  guardian  for 
his  person  and  property.  By  section  8  of  the  bankrupt  act,  it  is  de- 
clared that  "  the  death  or  insanity  of  a  bankrupt  shall  not  abate  the 
proceedings,  but  the  same  shall  be  conducted  and  concluded  in  the 
same  manner,  so  far  as  possible,  as  though  he  had  not  died  or  become 
insane."  In  this  section  provision  is  made  for  cases  wherein  the  pro- 
ceedings in  bankruptcy  are  commenced  during  the  lifetime  of  the  party, 
or  at  a  time  preceding  his  becoming  insane,  and,  in  effect,  the  meaning 
of  the  section  is  that,  in  cases  wherein  the  jurisdiction  of  the  court  in 
bankruptcy  has  rightfully  attached,  the  proceedings  shall  not  be  abated 
by  the  subsequent  death  or  insanity  of  the  bankrupt.  In  cases  wherein 
the  part}-,  although  giving  evidence  of  insanity,  has  not  been  adjudged 
insane,  but  remains  in  possession  and  control  of  his  property,  and  his 
creditors  seek  his  adjudication  as  a  bankrupt,  it  might  be  held  that  the 
bankruptcy  court  could  rightfully  exercise  jurisdiction,  and  could  hold 
the  party  responsible  for  his  acts  done  before  the  fact  of  his  insanity 
had  been  ascertained  and  established  ;  but,  however  this  may  be,  it 
cannot  be  so  held  in  cases  like  that  now  before  the  court,  wherein  it 
appears  that,  prior  to  the  filing  of  the  petition  in  bankruptcy  on  behalf 
of  creditors,  the  party  proceeded  against  had  been  adjudged  to  be  in- 
sane by  a  competent  court,  and  a  guardian  had  been  put  in  possession 
of  his  property.  By  section  3227  of  the  Code  of  Iowa,  it  is  provided 
that,  if  the  estate  of  an  insane  person  "is  insolvent,  or  will  probably  be 

debts  for  necessaries  might  not  be  a  bankrupt.  And  in  Re  Smedley,  10  L.  T.  Rep. 
N.  s.  432,  where  an  infant  had  been  arrested  on  an  execution  for  damages  and  costs  in 
an  action  of  tort,  and  the  only  way  of  obtaining  his  release  was  by  voluntary  bank- 
ruptcy, the  Liverpool  County  Court  held  that  his  petition  was  valid  and  he  was  adju- 
dicated a  bankrupt. 

In  Farris  v.  Richardson,  6  Allen,  118,  it  was  held  that  proceedings  under  the  Massa- 
chusetts Insolvent  Law  against  an  infant  not  represented  by  a  guardian  ad  litem  were 
void,  though  a  creditor  having  a  claim  for  necessaries  was  in  the  court  of  insolvency 
and  desired  to  prove  his  claim.  The  court  referred  to  but  did  not  decide  the  liability 
of  an  infant  to  insolvency  proceedings  if  a  guardian  ad  litem  were  duly  appointed. 

See  also  Winchester  v.  Thayer,  129  Mass.  129. 


SECT.  III.J  IN    RE   FUNK.  101 

Insolvent,  the  same  shall  be- settled  by  the  guardian  in  like  manner  and 
like  proceedings  may  be  had,  as  are  required  by  law  for  the  settlement 
of  the  insolvent  estate  of  a  deceased  person."  Under  the  provisions 
of  this  section,  it  becomes  the  duty  of  the  guardian  appointed  by  the 
district  court  of  Wright  County  to  settle  up  the  estate  placed  in  his 
hands  under  the  direction  of  the  court  appointing  him,  and  it  will  be 
the  duty  of  that  court  to  determine  the  question  of  the  validity  of  the 
liens  or  conveyances  executed  since  the  date  of  the  adjudication  of  the 
insanity  of  the  alleged  bankrupt,  and  to  make  due  and  proper  distri- 
bution of  the  assets  belonging  to  the  estate  now  in  its  charge.  It 
certainl}'  cannot  be  held  that  the  present  bankrupt  act  confers  upon 
the  courts  of  bankruptcy  the  right  to  settle  the  estates  of  insolvent 
decedents  unless  jurisdiction  in  the  court  of  bankruptc}'  had  attached 
during  the  lifetime  of  the  bankrupt,  and  the  same  rule  must  hold  good 
in  cases  wherein,  before  the  petition  has  been  filed  in  the  bankrupt 
court,  the  debtor  has  been  adjudged  to  be  insane,  and  his  property 
has  been  taken  charge  of  by  a  State  court  of  competent  jurisdiction.1 

It  is  further  contended  by  the  guardian  in  this  case  that  the  acts  of 
bankruptcy  charged  in  the  petition  were  committed  after  Funk  had 
been  adjudged  to  be  insane,  and  that  he  cannot  be  held  responsible 
therefor  in  such  sense  that  these  acts  can  be  held  to  be  acts  of  bank- 
ruptc}' ;  and  in  support  of  this  contention  the  ruling  of  Judge  Dillon 
in  the  case  of  Li  re  Marvin,  1  Dill.  178,  Fed.  Cas.  No.  9,178,  is  cited, 
wherein  it  was  said  that  "the  court  is  of  opinion  that  a  person  who  is 
eo  unsound  in  mind  as  to  be  wholly  incapable  of  managing  his  affairs 
cannot  in  that  condition  commit  an  act  for  which  he  can  be  forced  into 
bankruptcy  by  his  creditors,  against  the  objection  of  his  guardian  "  ; 
and  it  would  seem  clear  that  a  person  who,  by  reason  of  insanity,  is 
wholly  incapable  of  managing  his  business  affairs,  cannot  be  held  to 
have  intended  to  violate  the  provisions  of  the  bankrupt  act  by  entering 
into  transactions  which,  by  reason  of  his  mental  disability,  would  not 
be  binding  upon  him  under  the  rules  of  the  common  law.2  Under  the 
admitted  facts  in  this  case,  this  court,  as  a  court  of  bankruptcy,  should 
not  entertain  jurisdiction  of  the  petition  filed  by  the  creditors,  and  the 
same  will  therefore  be  dismissed,  at  the  costs  of  petitioners. 

1  Re  Murphy,  10  B.  R.  48,  ncc. 

Anon.  13  Ves.  590;  Ex  }>urte  Farr,  10  L.  T.  N.  8.  44;  Re  Pratt,  2  Low.  96;  Re 
Weitzel,  7  Bissell,  289,  contra.  See  also  lie  Burka,  107  Fed.  Rep.  674. 

In  Ex  parte  Cahen,  10  Ch.  P.  183  (C.  A.),  it  was  held  that  one  who  had  been  placed 
in  a  lunatic  asylum  by  direction  of  his  physician,  but  had  not  been  found  a  lunatic  by 
inquisition,  could  not  become  a  voluntary  bankrupt  by  means  of  a  petition  signed  by 
his  next  friend.  See  also  Re  Eisenberg,  117  Fed.  786. 

In  Re  Lee,  23  Ch.  D.  216  (C.  A.),  the  court  allowed  the  committee  of  a  lunatic,  so 
found  by  inquisition,  to  consent  to  an  adjudication  of  bankruptcy  against  him.  This 
was  followed  in  Re  James.  12  Q.  B.  D.  332  (C.  A.). 

2  Ex  parte  Priddey,  Cooke  (7th  ed.),  43;   Ex  parte  Stamp,  1  De  Gex,  345;  Rt 
Pratt,  2  Low.  96 ;  Re  Weitzel,  7  Biss.  289,  also  ace. 


102        IN   RE   NEW   YORK   AND   WESTCHESTER   WATER   CO.      [CHAP.  IL 

SECTION    IV. 
CORPORATIONS. 

IN  RE  NEW  YORK   &   WESTCHESTER   WATER   COMPANY. 

DISTRICT  COURT  FOR  THE  SOUTHERN  DISTUICT  OF  NEW  YORK, 
JANUARY  8,  1900. 

[Reported  in  98  Federal  Reporter,  711.] 

BROWX,  District  Judge.  This  matter  arises  upon  a  petition  of  vari- 
ous creditors  of  the  New  York  &  Westchester  Water  Company  to  have 
that  corporation  adjudged  a  bankrupt,  alleging  its  insolvency  and  sev- 
eral acts  of  bankruptcy.  The  answer  to  the  petition  as  was  ruled 
upon  the  hearing  of  the  issue,  a  jury  trial  being  waived,  admitted  in 
effect  the  insolvency  of  the  corporation,  but  denied  the  acts  of  bank- 
ruptcy alleged,  and  also  denied  the  jurisdiction  of  the  court,  on  the 
ground  that  this  corporation  is  not  subject  to  the  provisions  of  the 
bankrupt  act  (section  4b),  because  not  tl  engaged  principally  in  manu- 
facturing, trading,  printing,  publishing  or  mercantile  pursuits,"  as 
alleged  in  the  petition.  The  evidence  as  respects  the  acts  of  bank- 
ruptcy is  somewhat  complicated ;  but  from  the  conclusions  I  have 
arrived  at  on  the  other  branches  of  the  case,  it  will  not  be  necessaiy 
to  consider  that  subject. 

The  company  was  incorporated  under  the  Laws  of  1873  of  the  State 
of  New  York,  for  the  supply  of  pure  and  wholesome  water  to  the 
village  of  Westchester  and  others,  under  contract  with  the  local  au- 
thorities. By  an  amendment  of  its  charter  in  1895,  its  business  and 
powers  were  extended  so  as  to  include  the  right  "to  accumulate,  con- 
duct, store,  furnish,  buy,  sell,  use  and  deal  in  water  for  power,  manu- 
facturing and  hydraulic  purposes."  Its  water  supply  was  derived  mainly 
from  the  Hutchinson  River,  in  Westchester  County,  and  from  wells  and 
other  sources  of  supply  owned  or  leased  by  the  company.  It  had  some 
eighty  miles  of  mains  laid  in  the  streets  of  the  several  villages  supplied 
with  water,  and  received,  both  from  the  public  authorities,  as  well  as 
from  private  citizens,  large  rentals  for  the  supply  of  water  distributed 
for  private  and  public  uses.  On  December  31,  1897,  a  contract  was 
executed,  dated  December  2,  with  the  city  of  New  York,  wherebj'  the 
latter  authorized  this  company  to  tap  the  city's  Bronx  River  supply  pipe 
in  Yonkers,  and  to  draw  therefrom  not  to  exceed  500,000  gallons  per 
day,  to  be  paid  for  by  the  corporation  at  the  rate  of  10  cents  per  1,000 
gallons,  by  assigning  to  the  city  authorities  "  hydrant  rentals"  to  be- 
come due  from  the  city  for  water  supplied  to  it  by  the  company  for  fire 
protection  in  the  Twenty-fourth  ward ;  with  the  privilege  to  the  com- 
pany of  severing  such  connection  with  the  supply  pipe  at  pleasure  and 


SECT.  IV.]       IN   BE   NEW  YORK  AND   WESTCHESTER   WATER   CO.       103 

of  discontinuing  the  taking  of  water  from  the  city  supply,  and  the  privi- 
lege of  subsequently  again  making  connection  and  resuming  the  use  of 
the  water,  as  the  company  might  desire. 

For  some  period  preceding  the  trial,  how  long  does  not  appear,  the 
company  had  been  drawing  from  the  city's  supply  at  about  the  average 
rate  allowed  of  500,000  gallons  per  day.  This  was  resorted  to,  as  I 
infer  from  the  evidence,  to  insure  a  uniform  distribution  to  the  com- 
pany's customers,  partly  in  consequence  of  inefficiency  in  one  of  the 
company's  pumps  and  machinery,  and  the  liability  to  occasional  break- 
downs, and  parti}'  to  insure  a  full  supply. 

Although  the  company,  by  the  amendment  to  its  charter,  above 
referred  to,  was  empowered  "  to  buy  and  sell  water  for  power,  manu- 
facturing and  hydraulic  purposes,"  this  power  does  not  appear  ever  to 
have  been  used,  since  it  has  never  supplied,  according  to  the  testimony, 
an}7  water  for  those  purposes,  nor  done  any  commercial  or  mercantile 
business  ;  "  but  has  confined  itself  entirely  to  obtaining  and  furnishing 
water  for  the  customers,  cities  and  municipal  boroughs  mentioned," 
that  is,  to  the  residents  of  the  villages,  and  to  the  municipal  corpora- 
tions referred  to,  for  fire  purposes  and  the  supply  of  fire  hydrants.  At 
Pelhamville  the  company  had  sixteen  driven  wells  ;  and  besides  the 
amount  drawn  from  the  city's  supply  pipe,  the  ordinary  consumption 
from  the  company's  own  sources  of  supply  was  about  750,000  gallons 
daily. 

I  am  of  opinion  that  this  water  company  is  not  within  the  provisions 
of  the  bankrupt  act,  because  not  ''  engaged  principal!}'  in  either 
trading  or  mercantile  pursuits,"  in  the  sense  in  which  I  think  those 
words  are  used.  The  question  depends  entirely  upon  the  proper  con- 
struction to  be  given  to  those  words,  since  there  are  plainly  no  other 
words  in  the  present  act  that  could  include  an  incorporated  water 
company  like  this. 

The  act  of  1898  is  much  more  limited  in  its  application  to  corpora- 
tions than  the  act  of  1867.  By  the  latter  act  it  was  declared  (§  5122, 
Rev.  St.)  to  "  apply  to  all  moneyed,  business  or  commercial  corpora- 
tions and  joint  stock  companies."  The  present  act  is  restricted  to  cor- 
porations "  engaged  principally  in  manufacturing,  trading,  printing, 
publishing,  or  mercantile  pursuits." 

The  intention  of  Congress  greatly  to  restrict  the  application  of  the 
present  act  appears  manifest,  not  only  from  comparison  of  the  phrase- 
ology of  the  two  acts,  but  also  from  the  report  of  the  congressional 
conference  committee  upon  this  point,  showing  that  at  least  railroad 
and  transportation  corporations  and  banks  were  intended  to  be  omitted 
and  left  to  be  dealt  with  under  the  State  laws.  31  Cong.  Rec.  p.  6247, 
June  28,  1898.  In  the  recent  case  of  In  re  Cameron  Town  Mut.  Fire, 
Lightning  &  Windstorm  Ins.  Co.  (D.  C.),  96  Fed.  756,  it  was  accord- 
ingly held  that  the  present  act  does  not  apply  to  a  mutual  insurance 
company,  and  the  petition  in  that  case  was  dismissed.  On  the  point 
here  considered,  Phillips,  J.,  observes:  — 


104    '    IN   RE   NEW   YORK    AND    WESTCHESTER   WATER   CO.       [CHAP.  IL 

"  Can  it  be  said  that  a  company  <  organized  for  the  sole  purpose  of 
mutually  insuring  the  property  of  the  members,  and  for  the  purpose  of 
paying  any  loss  incurred  by  any  member  thereof  by  assessment,'  is 
principally  engaged  in  a  mercantile  pursuit?  When  the  legislature 
changed  the  statute  from  '  moneyed,  business,  or  commercial  corpora- 
tions '  to  the  language  '  principally  engaged  in  mercantile  pursuits,'  it 
is  to  be  presumed  it  was  done  for  a  purpose.  The  word  '  mercantile,' 
in  its  ordinary  acceptation,  pertains  to  the  business  of  merchants,  and 
has  '  to  do  with  trade,  or  the  buying  and  selling  of  commodities.'  A 
merchant  is  one  who  traffics,  or  who  bu}'s  and  sells  goods  or  com- 
modities. .  .  .  The  term  '  mercantile  pursuit'  necessarily  carries  with 
it  the  idea  of  traffic,  the  buying  of  something  from  another  or  the  sell- 
ing of  something  to  another,  and  is  allied  to  trade.  This  concern  has 
nothing  in  its  business  of  the  character  of  mercantile  pursuit."  96  Fed. 
757,  758. 

The  case  of  a  water  company  like  this,  obtaining  by  purchase  about 
two-fifths  of  the  suppl}'  which  it  furnishes  to  its  customers,  is  not  so 
clearly  excluded  as  a  mutual  insurance  compan}'.  But  in  each  case  as 
it  arises  the  limitations  imposed  by  the  act  must  be  carefully  observed. 
No  such  corporation  can  be  subjected  to  the  operation  of  the  bankrupt 
law,  nor  can  the  court  acquire  jurisdiction  over  it,  unless  it  is  found  to 
be  "  engaged  principally  in  trading  or  mercantile  pursuits."  These 
words  must  be  interpreted  in  the  sense  in  which  the}r  are  commonly 
used  and  received,  and  not  in  any  strained  or  unnatural  sense  for  the 
purpose  of  including  or  of  excluding  particular  corporations. 

In  Bouv.  Law  Diet,  a  trader  is  defined  as  "one  who  makes  it  his 
business  to  buj-  merchandise  or  goods  and  chattels  and  to  sell  the  same 
for  the  purpose  of  making  a  profit."  Black,  Law  Diet.,  says:  "One 
whose  business  is  to  bti}'  and  sell  merchandise  or  any  class  of  goods 
deriving  a  profit  from  his  dealings  ;  "  and  the  weight  of  authority  seems 
to  be,  that  the  proper  description  of  the  business  of  a  trader  includes 
both  buying  and  selling,  either  goods  or  merchandise,  or  other  goods 
ordinarily  the  subject  of  traffic.  Per  Lord  Ellenborough,  in  Sutton  v. 
Weeley,  7  East,  442  ;  Thompson,  C.  J.,  in  Wakeman  v.  Hoyt,  28  Fed. 
Gas.  1351  ;  Lowell,  J.,  in  Re  Chandler,  4  N.  B.  E.  213,  5  Fed.  Cas. 
447  ;  In  re  Smith,  2  Low.  69,  22  Fed.  Cas.  395  ;  Love  v.  Love,  15  Fed. 
Cas.  999. 

The  words  "  mercantile  pursuits"  may  have  a  little  broader  signifi- 
cation than  "  trading."  "  Mercantile"  is  defined  b}'  the  Century  Dic- 
tionary as  "  having  to  do  with  trade  or  commerce  ;  of  or  pertaining  to 
merchants,  or  the  traffic  carried  on  by  merchants  ;  trading  ;  commercial." 
It  signifies  for  the  most  part  the  same  thing  as  the  word  "  trading ;  " 
and  by  "  mercantile  pursuits  "  is  meant  the  buying  and  selling  of  goods 
or  merchandise  or  dealing  in  the  purchase  and  sale  of  commodities,  and 
that,  too,  not  occasionally  or  incidentally,  but  habitually  as  a  business. 
Norris  v.  Com.,  27  Pa.  St.  494 ;  Com.  v.  Natural  Gas  Co.,  32  Pittsb. 
Leg.  J.  310. 


SECT.  IV.]       IN   EE   NEW   YORK   AND   WESTCHESTER  WATER   CO.        105 

Selling  merely  the  natural  products  of  one's  own  land,  it  has  been 
held,  does  not  constitute  trading,  or  a  mercantile  pursuit,  even  though 
some  yearly  purchases  may  be  made  by  the  seller  in  order  to  keep  up 
his  regula/supply.  In  re  Woods,  7  N.  B.  R.  128,  Fed.  Cas.  No.  17,990  ; 
Port  v.  Turton,  2  Wils.  169  ;  In  re  Cleland,  2  Ch.  App.466  ;  Ex  parte 
Gallimore,  2  Rose,  424.  These  terms  are  restricted  also  to  dealings  in 
merchandise,  goods  or  chattels,  the  ordinary  subjects  of  commerce ;  so 
that  a  railroad  contractor,  or  a  speculator  in  stocks,  whether  on  his 
own  account,  or  as  broker,  is  not  deemed  a  trader  or  merchant.  In  re 
Smith,  2  Low.  69,  22  Fed.  Cas.  395  ;  In  re  Marston,  5  Ben.  313,  16 
Fed.  Cas.  857 ;  In  re  Woodward,  8  Ben.  563,  30  Fed.  Cas.  542  ;  In  re 
Moss,  19  N.  B.  R.  132,  17  Fed.  Cas.  901,  per  Choate,  J.  It  has  also 
been  held  that  incidental  purchases  or  sales  by  a  person  not  otherwise 
a  trader,  will  not  make  him  such.  Lord  Eldon,  Ex,  parte  Gallimore, 
2  Rose,  424 ;  Patten  v.  Browne,  7  Taunt.  409  ;  In  re  Duff  (D.  C.), 
4  Fed.  519,  per  Choate,  J.  ;  In  re  Kimball  (C.  C.),  7  Fed.  461,  per 
Lowell,  J. 

No  doubt  the  powers  of  a  corporation  are  to  be  determined  by  its 
charter  and  by  the  statutes  applicable  to  it.  The  amendment  of  the 
charter  of  this  corporation  authorized  it  "to  buy,  sell,  use  and  deal  in 
water  for  power,  manufacturing  and  hydraulic  purposes."  As  above 
stated,  however,  the  evidence  is  that  it  did  not  furnish  water  for  these 
purposes,  and  under  the  bankrupt  act  the  question  is,  not  how  exten- 
sive the  company's  powers  ma}-  be,  but  in  what  pursuits  the  corporation 
is  in  fact  principally  engaged,  and  whether  these  pursuits  are  principally 
trading  or  mercantile. 

In  view  of  the  above  definitions  and  precedents,  it  seems  to  me  a 
strained  and  unnatural  use  of  terms  to  describe  the  ordinary  business 
of  a  water-supply  company  as  a  "  trading  or  mercantile  pursuit."  In 
common  parlance,  I  think  such  a  business  would  never  be  so  described  ; 
and  if  only  those  corporations  are  subject  to  the  bankrupt  act  that  are 
engaged  in  "  trading  or  mercantile  pursuits  "  in  the  commonly  received 
meaning  of  those  words,  I  do  not  see  how  water-supply  companies  can 
fairly  be  held  to  be  within  the  act.  In  the  case  of  First  Nat.  Bank  v. 
Council  Bluffs  City  Waterworks  Co.,  56  Hun,  412,  9  N.  Y.  Supp.  859, 
the  court  observes  :  "  This  water  company  was  not  a  trading  or  bank- 
ing corporation." 

This  view  is  confirmed  by  observing  more  particularly  the  precise 
nature  of  such  a  company's  business,  its  undertaking,  its  methods, 
and  its  mode  of  compensation. 

Its  business  is  to  obtain  pure  water,  and  by  means  of  mains  and 
pipes,  to  transport  it  from  its  sources,  often  through  long  distances, 
under  considerable  pressure,  so  as  to  serve  its  customers  b}r  a  running 
stream  at  the  elevations  desired. 

Water  is  a  natural  product.  In  its  natural  condition,  it  is  not  usu- 
ally considered  merchandise.  At  the  sources  of  supply,  when  the 
company's  plant  is  once  established,  the  water  itself  costs  little  or 


106       IN   RE   NEW   YORK  AND  WESTCHESTER   WATER   CO.      [CHAP.  H, 

nothing.  In  its  natural  state,  it  has  no  commercial  value.  When 
bottled  or  enclosed  in  casks  and  put  upon  the  market,  it  becomes  a 
commodity,  and  is  a  subject  of  trade  and  commerce  in  the  proper  sense. 
But  that  is  not  the  business,  nor  would  that  meet  the  requirements  of 
a  water-supply  company.  Such  a  company  does  not  sell  water  as  a 
commodity  deliverable  from  band  to  hand  ^n  specific  quantities,  or  at 
any  specific  price.  The  characteristic  feature  of  the  business,  as  I 
have  said,  is  to  transport  the  water  as  a  running  stream  and  in  its 
natural  condition,  from  the  sources  of  supply  to  the  elevations  at  which 
it  is  to  be  served.  Its  cost  to  the  compat:^  is  chiefly  the  cost  of  trans- 
portation under  pressure  ;  and  what  its  customers  pay  to  the  company 
is  not  the  price  of  any  specific  amount  of  water,  as  upon  a  direct  sale, 
but  for  the  use  of  the  company's  transportation  service,  in  the  form  of 
rentals  for  the  privilege  of  tapping  its  mains  or  pipes  and  drawing 
therefrom.  The  rentals  no  doubt  vary  with  reference  to  the  number 
and  size  of  pipes  used  and  the  amount  of  water  liable  to  be  drawn  ;  but 
when  fixed,  the  rentals  are  payable  irrespective  of  the  particular  amount 
drawn,  or  whether  any  water  is  drawn  or  not. 

These  circumstances  seem  wholh1  to  distinguish  the  business  of  a 
water  companj7  from  a  trading  or  mercantile  pursuit,  as  those  words 
are  commonly  understood.  The  leading  idea  of  the  company  is,  not 
to  trade  or  traffic  in  water  as  merchandise,  but  to  transport  it  under 
pressure  from  distant  sources  to  the  consumer  in  the  form  above 
stated,  renting  out  privileges  to  draw  from  its  pipes.  This  charac- 
teristic feature  naturally  brings  such  companies  within  the  classifi- 
cation of  transportation  companies,  among  which  it  is  recognized 
and  classified  by  the  Laws  of  New  York,  in  the  revision  of  the  laws 
entitled,  "  An  act  in  relation  to  transportation  corporations,  except- 
ing railroads.  Laws  1890,  c.  566.  This  chapter  treats  of  ferry, 
navigation,  stage-coach,  tramway,  pipe-line,  water-works,  gas  and 
electric  light,  telegraph  and  telephone,  turnpike,  plank-road  and  bridge 
corporations.  This  statutory  classification  is,  I  think,  founded  upon 
the  true  conception  of  the  main  functions  of  the  company,  which  ex- 
cludes it  from  the  class  of  trading  or  mercantile  pursuits  intended  by 
the  bankrupt  act. 

The  contract  with  the  city  by  which  the  company  recently  secured 
about  two-fifths  of  the  water  supplied  by  it  to  the  different  villages 
and  municipal  corporations  for  private  and  public  uses,  certainly  does 
not  change  the  essential  character  of  its  business,  nor  make  it  princi- 
pally engaged  in  trading  or  commercial  pursuits.  That  was  but  a 
single  contract  incidental  to  the  general  purpose  of  the  corporation,  and 
to  enable  it  to  furnish  a  regular  and  unfailing  supply  through  its  mains, 
but  terminable  at  pleasure  when  its  machinery  and  other  sources  of 
supply  should  be  more  complete. 

Considerable  has  been  said  in  argument  on  the  question  whether 
water  companies  like  this,  incorporated  under  the  act  of  1873,  are 
quasi  public  corporations,  exercising  in  some  degree  a  governmental 


SECT.  IV.]       IN   RE   NEW   YORK   AND   WESTCHESTER   WATER   CO.        107 

agency.  So  far  as  any  such  claim  might  exempt  these  corporations 
from  taxation,  it  was  rejected  by  the  court  of  appeals  in  ^he  Case  of 
the  Mills  Waterworks  Co.,  97  N.  Y.  97.  The  language  of  Danforth, 
J.,  in  delivering  the  opinion  of  the  court  in  that  case,  seems  to  dem 
the  exercise  by  such  companies  of  any  public  functions  whatever, 
or  that  the  company's  means  are  devoted  to  any  public  use,  or  other 
than  simply  to  the  earning  of  money  for  the  corporation's  own  use. 
The  general  language  employed  seems  to  go  beyond  the  requirements 
of  the  case.  It  is,  however,  well  settled  in  other  cases  that  such  com- 
panies do  subserve  a  public  use  so  far  as  to  justif}-  the  exercise  of  the 
right  of  eminent  domain  ;  and  that  the  uses  the}'  subserve  are  none 
the  less  public,  because  procured  through  private  enterprise.  Water 
Co.  v.  Stanley,  39  Hun,  424,  426,  affirmed  in  103  N.  Y.  650 ;  Water- 
works Co.  v.  Bird,  130  N.  Y.  249,  259,  29  N.  E.  246.  And  the  same 
view  has  been  frequently  expressed  in  the  federal  courts.  San  Diego 
Land  &  Town  Co.  v.  City  of  National  City,  174  U.  S.  739,  755,  19  Sup. 
Ct.  804,  43  L.  Ed.  1154 ;  New  Orleans  Gaslight  Co.  v.  Louisiana  Light 
&  Heat  Producing  &  Mfg.  Co.,  115  U.  S.  650,  669,  6  Sup.  Ct.  252, 
29  L.  Ed.  516  ;  Walla  Walla  Water  Co.  v.  City  of  Walla  Walla,  (C.  C.) 
60  Fed.  957,  960. 

I  do  not  attach  much  importance,  however,  to  any  quasi  public  char- 
acter, more  or  less,  that  water  companies  may  have  in  consequence  of 
the  public  uses  they  subserve.  For  the  franchises  of  this  company,  by 
its  contract  with  the  local  authorities,  are  assignable ;  so  that  there  is 
nothing  to  prevent  the  exercise  of  its  functions  by  any  transferree  to 
whom  its  powers  might  pass  through  bankruptcy  proceedings,  if  law- 
fully subject  to  the  operation  of  the  bankrupt  act.  For  the  reasons 
previously  stated,  however,  I  do  not  think  this  company  is  within  the 
act,  and  the  petition  is,  therefore,  dismissed.1 

1  The  Amendment  of  1910  to  Section  4a,  which  includes  any  corporation,  "except 
a  municipal,  railroad,  or  banking  corporation,"  permitted  for  the  first  time  under  the 
Act  of  1898  a  voluntary  petition  by  a  corporation,  but  as  prior  to  that  time  a  corpora- 
tion could  admit  its  insolvency  and  express  its  willingness  to  be  adjudged  a  bankrupt 
and  get  a  friendly  creditor  to  file  a  petition  the  change  in  substance  is  not  great. 

The  Amendment  of  1910  to  Section  4b,  however,  renders  obsolete  many  prior  de- 
cisions. Now,  any  "  moneyed,  business,  or  commercial  corporation,  except  a  municipal, 
railroad  insurance  or  banking  corporation,"  is  within  the  scope  of  the  statute.  These 
words  are  copied  from  the  Act  of  1867,  and  may  be  understood  to  include  all  corpora- 
tions organized  for  corporate  profit,  with  the  exceptions  named.  See  Re  It.  L.  liadke 
Co.,  198  Fed.  735. 


108  IN   EE   LUCKHARDT.  [CHAP.  II, 

SECTION  V. 
WAGE  EARNERS  AND  FARMERS. 

IN  RE  LUCKHARDT. 
DISTRICT  COURT  FOR  THE  DISTRICT  OF  KANSAS,  MAT  19,  1900. 

[Reported  in  101  Federal  Reporter,  807.]    • 

HOOK,  District  Judge.  This  is  a  proceeding  in  involuntary  bank- 
ruptcy, brought  on  January  9,  1900,  by  a  number  of  mercantile  firms 
and  corporations,  creditors  of  the  alleged  bankrupt.  It  is  set  forth  in 
the  petition,  among  other  things,  that  Luckhardt  is  insolvent,  and  that 
on  or  about  November  1,  1899,  he  conveyed,  transferred,  concealed, 
and  removed  a  part  of  his  property  with  intent  to  hinder,  delay,  and 
defraud  his  creditors,  and  that,  while  insolvent,  he  transferred  a  por- 
tion of  his  property  to  one  or  more  of  his  creditors,  with  intent  to 
prefer  them  over  his  other  creditors.  The  alleged  bankrupt  has  filed 
an  answer,  in  which  he  does  not  deny  the  essential  allegations  in  the 
petition,  but  sets  up  in  bar  to.  the  relief  praj-ed  for  by  petitioners 
that  from  August  4,  1899,  up  to  the  filing  of  the  petition  he  was,  and 
is  still,  engaged  chiefly  in  farming.  Testimony  has  been  taken  on  the 
part  of  the  alleged  bankrupt  in  support  of  his  answer,  and  it  is  sub- 
mitted to  the  court  as  upon  a  demurrer  of  the  petitioning  creditors  to 
the  evidence.  It  appears  from  the  testimony  that  Luckhardt  had  been 
engaged  in  the  retail  boot  and  shoe  business  at  Boonville,  Mo.,  for 
about  five  3-ears  prior  to  March,  1899,  and  in  that  month  he  removed 
his  stock  of  goods  to  North  Topeka,  Kan.,  and  continued  the  same 
business  there.  In  August,  1899,  he  determined  to  sell  his  stock,  and 
quit  the  business,  but  he  nevertheless  continued  the  conduct  thereof 
until  the  latter  part  of  October,  1899.  He  continued  to  sell  at  retail 
in  the  usual  and  customary  wa}7,  and  to  replenish  his  stock  by  pur- 
chases of  new  goods  from  time  to  time  until  the  26th  of  October,  1899. 
There  was  no  apparent  difference  in  the  conduct  of  his  business  during 
the  months  of  September  and  October  from  that  of  the  previous  period. 
The  father-in-law  of  the  alleged  bankrupt  died  in  April,  1899,  seised  of 
a  farm  in  Missouri,  consisting  of  137  acres  of  land,  which,  upon  his 
death,  became  the  propertj"  of  his  widow,  daughter,  and  two  grand- 
children, the  offspring  of  a  deceased  son.  The  daughter  is  the  wife 
of  Luckhardt,  the  alleged  bankrupt.  About  the  4th  of  August,  1899, 
Luckhardt  and  his  family  and  his  mother-in-law,  who  had  come  to 
Kansas,  and  lived  with  him,  returned  to  Missouri,  and  went  on  the 
farm.  He  stayed  there  about  a  month,  then  returned  to  Topeka,  where 
he  remained  a  month.  He  then  went  back  to  the  farm,  and  stayed  a 
couple  of  weeks,  and  then  returned  to  Topeka,  where  he  remained  until 


SECT.  V.]  IN   RE    LUCKHARDT.  109 

earl}'  in  November.  He  then  again  returned  to  the  farm,  and  has  re- 
mained there  ever  since.  During  his  absence  from  Kansas  his  boot 
and  shoe  business  was  left  in  charge  of  a  clerk.  On  the  26th  of 
JjctoberJie  sold  his  entire  stock  of  merchandise,  which  invoiced  $6,^370 
in  bulk,  for  $2,870  in  cash  and  160  acres  of  land  in  Kansas,  which  was 
taken  by  him  at  $3,500.  This  land  he  sold  to  his  wife,  but  it  does  not 
appear  what  he  received  for  it.  Luckhardt  testified  that  the  proceeds 
of  the  sale  received  by  him  were  in  part  disposed  of  as  follows  :  $628 
was  paid  on  a  note  held  at  Boonville,  Mo.,  upon  which  his  father, 
mother,  and  wife  were  sureties ;  $200  was  paid  to  his  brother  upon  a 
note  held  by  the  latter ;  $500  was  paid  to  his  mother,  who  lives  in 
Oregon,  Mo.  ;  and  from  $60  to  $75  was  paid  to  a  man  in  Topeka,  Kan. 
None  of  his  merchandise  creditors  were  paid.  During  the  cross- 
examination  of  Luckhardt,  in  which  counsel  for  the  petitioning  cred- 
itors evidentby  desired  to  show  an  absence  of  good  faith  in  the  defence 
set  up  in  the  answer,  he  declined  to  testify  as  to  what  he  did  with  the 
remainder  of  the  money  received  by  him,  saying  that  he  could  not 
answer  without  his  books.  Upon  being  requested  to  produce  his  books 
so  that  he  could  answer,  his  counsel  objected  to  a  postponement  of  the 
taking  of  the  depositions  to  enable  him  to  do  so,  and  the  notary  sus- 
tained the  objection.  He  also  said  that  he  could  not  even  approximate 
the  amount  of  his  indebtedness,  and  that  he  could  not  tell  how  long  it 
would  take  to  figure  it  up.  The  farm  of  which  his  father-in-law  died 
seised,  and  upon  which  he  claims  to  be  engaged  in  his  farming  opera- 
tions, had  been  rented  to  a  tenant  for  one-half  of  the  crop  raised 
thereon.  Luckhardt  did  not  know  whether  the  term  of  the  tenant  had 
expired  when  he  went  on  the  farm  on  the  4th  of  August,  1899.  He 
says  he  leased  the  farm  from  his  mother  and  wife  verbally,  and  that 
the  terms  of  the  arrangement  were  that  he  should  give  them  one-half 
of  the  crop  raised  on  the  place.  He  immediately  sublet  to  the  former 
tenant  all  of  the  tillable  land  except  a  portion  for  oats,  for  half  of  the 
crop  raised  thereon.  When  he  received  the  crop  rent  from  the  tenant, 
he  was  to  turn  it  over  to  his  wife  and  mother-in-law  on  account  of  the 
rent  due  from  him  to  them.  He  retained  for  the  use  of  his  familj'  and 
himself  the  house  and  about  35  acres  of  pasture  and  meadow  land,  and 
some  of  the  cultivated  land  for  oats.  It  is  upon  this  situation  and 
under  these  circumstances  that  the  alleged  bankrupt  claims  immunity 
from  the  proceeding  against  him. 

The  bankrupt  act  provides  that  "  any  natural  person  except  a  wage 
earner  or  a  person  chiefly  engaged  in  fanning  or  the  tillage  of  the 
soil  .  .  .  may  be  adjudged  an  involuntary  bankrupt,"  etc.  Section  4  &. 
The  act  is  remedial  in  its  nature  and  purposes,  and  is,  therefore,  not  to 
receive  a  strict  interpretation,  but  is  rather  to  be  construed  reasonably, 
and  with  a  view  to  effect  its  objects  and  to  promote  justice.  The 
exemption  from  involuntary  proceedings  in  favor  of  wage  earners  and 
persons  engaged  chiefly  in  farming  or  the  tillage  of  the  soil  is  not 
intended  as  a  means  of  escape  for  insolvents  whose  property  waa 


110  IN   KE   LUCKHARDT.  [CHAP.  II. 

acquired  and  whose  debts  were  incurred  in  other  occupations  recently 
engaged  in.  If  the  right  of  the  creditors  to  institute  involuntary  pro- 
ceedings may  be  thus  defeated  by  the  debtors  within  the  period  allowed 
for  the  commencement  of  such  proceedings,  it  could  be  defeated  by  a 
change  of  occupation  made  coincidently  with  the  commission  of  an  act 
of  bankruptcy,  and  an  insolvent  debtor  would  thus  be  permitted  to 
dispose  of  his  stock  of  merchandise  or  other  property,  distribute  the 
proceeds  thereof  in  such  manner  as  pleased  him,  immediately  become 
for  the  time  being  a  tiller  of  the  soil,  or  a  wage  earner  "  at  a  rate  of 
compensation  not  exceeding  $1,500  per  year,"  and  so. avoid  the  opera- 
tion of  the  bankrupt  act.  Such  a  result  is  not  in  accord  with  the  pur- 
pose nor  within  the  spirit  of  the  law.  A  petition  in  an  involuntary 
proceeding  must  be  filed  within  four  months  after  the  commission  of 
the  act  of  bankruptcy  relied  on,  and  if  an  insolvent,  who  is  engaged  in 
an  occupation  which  is  within  the  purview  of  the  law,  has  committed 
an  act  rendering  him  amenable  to  its  provisions,  and  desires  within 
-Hich  period  to  adopt  one  of  the  callings  favored  b}-  the  law,  and  ex- 
".npted  from  its  operation  in  respect  of  involuntary  proceedings,  he 
should  not  be  permitted  to  earn-  with  him  the  property  previously 
accumulated,  to  the  defrauding  of  pre-existing  creditors.  The  ex- 
cepted  occupations  are  not  designed  as  a  refuge  for  insolvent  debtors 
laden  with  property  and  fleeing  from  other  callings.  The  right  of  the 
creditors  to  proceed  within  the  period  limited  after  the  commission  of 
an  act>  of  bankruptc}'  cannot  be  thus  defeated  by  the  debtor.  This  in- 
terpretation is  in  entire  harmony  with  the  spirit  and  object  of  the  law, 
and  is  in  accord  with  the  plain  principles  of  right  and  justice,  and  it 
prevents  the  perversion  of  provisions  designed  for  the  favor  and  pro- 
tection of  those  who  are  in  good  faith  wage  earners  or  tillers  of  the 
soil.  Let  an  order  be  entered  adjudging  the  said  William  Luckhardt 
to  be  a  bankrupt.1 

1  One  who  was  engaged  in  an  occupation  subjecting  him  to  bankruptcy  at  the  time 
when  the  act  of  bankruptcy  complained  of  was  committed  cannot  avoid  adjudication 
by  changing  his  occupation  after  the  act  of  bankruptcy.  Re  Mackey,  110  Fed.  355; 
Re  Pilger,  118  Fed.  206 ;  and  cases  infra.  It  was  held  that  the  occupation  at  the  time 
the  debts  were  created  was  controlling  in  Tiffany  v.  La  Plume  Condensed  Milk  Co., 
141  Fed.  444;  Re  Crenshaw,  156  Fed.  638;  Re  Burgin,  173  Fed.  726;  Re  Naroma 
Chocolate  Co.,  178  Fed.  383.  But  the  occupation  when  the  act  of  bankruptcy  was 
committed  was  held  to  govern  in  Flickinger  v.  Nat.  Bank,  145  Fed.  1 63;  Re  Leland, 
185  Fed.  830;  Counts  v.  Columbus  Buggy  Co.,  210  Fed.  748  (C.  C.  A.). 

An  involuntary  petition  should  state  the  defendant's  business,  or  that  he  is  not  a 
farmer  or  wage-earner.  Re  Taylor,  102  Fed.  Rep.  728  (C.  C.  A.) ;  Beach  v.  Macon 
Grocery  Co.,  120  Fed.  736  (C.  C.  A.) ;  Re  Mero,  128  Fed.  630;  Re  Brett,  130  Fed.  98J. 


CHAP.  III.]  KE   ALEXANDER.  Ill 


CHAPTER   III. 
WHO  MAY  BE  PETITIONING  CREDITORS. 

RE   W.    B.    ALEXANDER.      RE   J.    F.   ALEXANDER. 

DISTRICT   COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS,   SEPTEMBER, 

1870. 

[Reported  in  I  Lowell,  470.] 

BANKRUPTCY.1  These  petitions  for  involuntary  bankruptcy  against 
the  several  defendants  were  tried  together  by  consent  of  the  parties. 
The  defendant,  James  F.  Alexander,  bought  out  the  stock  in  trade  of 
the  petitioner,  O'Connell,  in  February,  1869,  for  about  twenty-four 
hundred  dollars  ;  of  which  five  hundred  dollars  was  paid  down,  and  for 
the  remainder  the  two  defendants  gave  their  joint  and  several  promis- 
sory notes  on  one,  two,  three,  and  four  years,  with  interest  at  eight 
per  cent  a  }~ear,  payable  semi-annually,  secured  by  a  mortgage  on  the 
stock  in  trade.  William  B.  Alexander,  the  father  of  the  other  defend- 
ant, had  no  interest  in  the  purchase,  but  joined  in  the  notes  for  the 
greater  security  of  the  petitioner,  and,  as  between  the  two  defendants, 
was  a  surety  only. 

In  February,  1870,  the  first  note  became  due  and  was  paid,  together 
with  the  interest  on  the  whole  debt.  The  next  note  will  be  payable  in 
February,  1871.  On  the  thirteenth  of  February,  1870,  the  father  con- 
veyed his  dwelling-house  and  land  at  East  Boston  to  his  wife.  He  was 
not  and  never  had  been  a  trader,  and  he  had  no  other  estate  or  effects 
liable  to  seizure  on  execution,  and  owed  no  debts  excepting  to  this  peti- 
tioner. In  March  the  son  conveyed  to  his  wife  a  dwelling-house  and 
land  which  had  stood  in  his  name  for  about  two  years.  Evidence  was 
admitted,  de  bene,  to  show  that  he  held  the  house  by  gift  from  his 
father-in-law,  upon  an  oral  trust  or  understanding  that  it  should  be 
used,  enjoyed,  and  conveyed  for  the  benefit  of  the  grantor's  family,  in- 
cluding the  defendant's  wife.  The  conveyance  to  the  wife  was  made 
without  the  consent  or  knowledge  of  the  father-in-law,  who  heard  of  it 
but  lately,  not  long  before  this  petition  was  filed,  and  testified  that  he 
acquiesced  in  the  arrangement.  This  defendant  owed  no  debts  of  any 
consequence,  excepting  the  mortgage  debt,  and  one  to  his  aunt,  of 
whom  he  borrowed  the  five  hundred  dollars  paid  out  in  the  first  instance 

1  A  portion  of  the  opinion,  in  which  it  was  decided  that  the  gift  made  by  W.  B. 
Alexander  to  his  wife  was  an  act  of  bankruptcy,  and  in  which  the  court  suggested 
that  the  parties  compromise,  is  omittod. 


112  RE   ALEXANDER.  [CHAP.  III. 

towards  the  purchase  of  this  stock.     The  evidence  tended  to  show  that 
this  debt  would  not  be  pressed  against  him. 

LOWELL,  J.  Several  points  of  law  have  been  ably  discussed  before 
me,  and  I  will  consider  them  in  their  order. 

1.  The  fact  that  the  petitioner's  debt  is  not  yet  payable  is  not  a  valid 
answer  to  this  proceeding.     By  section  39  all  creditors  whose  debts  are 
provable  under  the  act  may  petition  ;  and  by  section  19  debts  existing  but 
not  payable  until  a  future  day,  are  provable.     It  was  so  under  the  act 
of  1841  :  Barton  v.  Tower,  5  Law  Reporter,  214  ;  and  the  practice  has 
always  been  so  under  the  insolvent  law  of  this  commonwealth.     It 
would  be  a  sad  defect  in  a  bankrupt  law  if  the  rights  of  creditors  de- 
pended on  the  time  at  which  their  debts  matured.1 

2.  The  next  objection  is  that  a  creditor  who  holds  security  cannot 
petition.     Here  an  important  distinction  is  to  be  noted.     This  creditor 
has  no  security  upon  the  property  of  W.  B.  Alexander,  and  the  language 
of  section  20  is  that  a  creditor  who  holds  security  upon  the  property  of 
the  bankrupt  shall  be  admitted    to  prove   only  for  the  balance,   &c. 
This  would  seem  to  show  that  the  petitioner  has  a  provable  debt  for 
the  full  amount  against  the  estate  of  the  father,  because  his  only  secur- 
it3*  is  on  the  estate  of  the  son.     Such  has  always  been  the  practice  in 
England,  and  I  am  much  inclined  to  think  it  the  true  practice.      If 
the  surety  pays  the  debt,  he  ma}7  be  entitled  to  the  benefit  of  the  col- 
lateral security.     But  in  bankruptcy  it  seems  more  just  and  equitable 
that  the  creditor  should  have  the  benefit  of  all  his  remedies,  so  that  he 
may  obtain  his  whole  debt  if  possible.     If  he  is  obliged  to  realize  his 
security,  and  prove  only  for  a  balance,  he  will  be  losing  the  advantage 
for  which  he  has  stipulated,  of  the  full  credit  of  the  surety.     A  con- 
trar}-  doctrine  appears  to  have  prevailed  in  Massachusetts  :  Lancton  v. 
Wolcott,  6  Met.  305  ;  but  I  am  not  prepared  to  say  that  I  could  follow 
that  precedent,  nor  that  the  statutes  are  preciselj*  alike  on  this  point. 
Judge  Fox  has  ably  vindicated  what  I  believe  to  be  the  true  doctrine 
under  the  bankrupt  law.     It  is  not  necessaiy  to  decide  the  question  in 
this  case,  for  reasons  which  will  presently  appear.2 

3.  The  next  question  is  whether  a  creditor  who  holds  a  mortgage 
upon  the  property  of  his  debtor  can  proceed  against  that  debtor  him- 
self by  petition  in  bankruptcy.     By  section  20  such  a  petitioner  can  be  a 

1  In  England,  under  the  earlier  statutes  and  also  under  the  Bankruptcy  Act  of 
1869,  it  was  held  that  a  petitioning  creditor's  debt  must  be  due  and  payable  at  the 
time  of  the  petition.  But  under  the  Act  of  1883,  now  in  force,  a  debt  payable  in  future 
is  sufficient.  Robson  on  Bankruptcy  (7th  ed.),  205,  206. 

In  the  United  States  the  doctrine  of  Re  Alexander  as  to  this  point  is  settled.  Re 
Onimette,  3  B.  R.  566;  Phenix  Nat.  Bank  v.  Waterbnry,  197  N.  Y.  161,  165. 

By  the  English  law,  it  is  also  necessary  that  the  debt  of  the  petitioning  creditor 
should  have  been  contracted  before  the  Act  of  Bankruptcy  alleged  in  the  petition. 
Robson,  210.  This  rule  was  approved  in  Re  Mullen,  Deady,  513;  Re  Brinckmann,  103 
Fed.  65;  Brake  v  Callison,  129  Fed.  201  (C.  C.  A.).  But  see  contra,  Re  Perry  &  Whit- 
ney Co.,  172  Fed.  745 ;  Re  Banyan,  180  Fed.  498. 


CHAP.  III.]  ,  RE   ALEXANDER.  113 

creditor  onty  for  the  balance,  after  deducting  the  value  of  the  property, 
which  value  is  to  be  ascertained  by  agreement  with  the  assignee,  or  by 
a  sale  under  direction  of  the  court.  The  argument  is  that  until  an 
assignee  is  appointed  it  cannot  be  legally  ascertained  whether  such  a 
mortgagee  is  really  a  creditor  or  not.  This  appears  to  me  too  strict 
and  literal  a  construction.  Take  the  case  of  an  admitted  act  of  bank- 
ruptcy, and  of  creditors  whose  security  is  plainly  inadequate.  Are 
they  to  be  without  remedy?  No  better  illustration  than  this  case 
affords  could  be  desired.  If  this  creditor  cannot  petition  there  is  no 
other  person  who  is  interested  to  do  so,  and  after  the  six  months  have 
passed  he  is  without  remedy.  I  have  known  a  case  in  which  all  the 
creditors  were  secured,  and  none  of  them  adequately.  The  true  intent 
and  equity  of  the  statute  will  be  met  by  holding  that  when  the  security 
falls  short  of  a  full  indemnity,  by  two  hundred  and  fifty  dollars,  or  more, 
thus  leaving  the  amount  of  a  petitioning  creditors  debt  practically  un- 
secured, the  debt  is  sufficient.  This  will  be  a  question  of  fact  like  any 
other,  and  no  more  difficult  to  decide  than  such  as  often  arise  on  a  dis- 
puted account  or  other  debt  sufficient  in  kind.  This  is  the  law  of  Eng- 
land by  the  express  words  of  24  &  25  Viet.,  c.  134,  §  97.  I  do  not 
wish  to  be  understood  that  a  creditor  holding  collateral  security  may 
not  petition,  if  he  offers  to  surrender  and  cancel  his  security,  nor  that 
an}'  security  by  attachment  or  other  lien  created  by  law  would  usually 
be  a  bar ;  but  my  opinion  is  that  full  and  adequate  security  created  by 
contract  must  be  abandoned,  and  that  if  inadequate  it  must  be  so  to 
the  extent  above  mentioned.1 

4.  It  is  no  defence  in  bankruptcy  that  the  petitioner  is  the  only  cred- 
itor, nor  that  he  has  an  adequate  remedy  at  law  or  in  equity  in  the 
State  or  federal  courts.  The  bankrupt  law  protects  all  creditors,  and 
is  additional  to  other  remedies  in  all  the  cases  to  which  it  applies.  This 
creditor  alleges  in  his  petition,  and  has  proved  to  my  satisfaction,  that 
his  security  falls  short  by  more  than  two  hundred  and  fifty  dollars,  and 
I  must  hold  him  entitled  to  proceed.2 

1  A  creditor  having  security  from  the  bankrupt  may  be  a  petitioning  creditor  as  to 
the  excess  of  his  claim  above  the  security :  Eng.  B.  A.  1883,  §  6  ;    B.  A.  1898,  §  59 ;  or 
he  may  waive  the  security  and  petition  as  if  unsecured  :    Re  Rankin,  1  B.  11.  647  ; 
Re  Bloss,  4  B.  R.  147 ;  Re  Stansell,  6  B.  R.  183  ;  Re  Sheehan,  8  B.  R.  345  ;  Re  Frost, 
6  Biss.  213,  217. 

2  Conf.   Ex  parte  English   Bank,  L.  R.  6  Ch.  79;  Re  Sheehan,  8  B.  R.  353  ;   Rt 
Johann,  2  Biss.  139  ;  O'Neil  v.  Glover,  5  Gray,  144. 


A 
' 


114  IN   RE    ROMANOW.  .  [CHAP.  III. 


IN  RE  ROMANOW. 

DISTRICT   COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS, 
MARCH  10,  1899. 

[Reported  in  92  Federal  Reporter,  510.] 

IN  bankruptcy. 

Sumner  H.  Foster,  for  petitioning  creditors. 

A.  S.  Cohen,  for  respondents. 

LOWKLL,  District  Judge.  This  case  raises  several  interesting 
questions  concerning  the  right  of  certain  alleged  creditors  of  the  re- 
spondents to  file  a  petition  in  involuntary  bankruptcy  against  them. 
The  act  of  bankruptcy  alleged  is  a  general  assignment  made  October 
4,  1898.  One  or  more  of  the  petitioners  assented  to  this  assignment, 
and  the  respondents  object  that  persons  so  assenting  cannot  be  parties 
to  the  petition.  The  objection  is  valid.  By  accepting  the  assignment, 
the  creditors  released  their  claims  against  the  respondents,  and,  in 
place  thereof,  accepted  claims  under  the  assignment.  Though  the  as- 
signment is  an  act  of  bankruptc}',  and  is  avoided  by  the  adjudication, 
yet  it  is  not  a  void  instrument,  but  only  a  voidable  one.  Until  the 
adjudication  it  is  valid,  and  the  assenting  creditors  are  bound  by  their 
assent  thereto.  Hence,  it  fol[ows_that,_imti^adiudication,  the  persons 
who  had  assented  to  tEeT  assignment  had  ceased  to  be  creditors  of  the 
respondents.  Tf~Ihis~afgument  be  tfiought  too  technical,  then  it  may 
be  IsaicTthat  those  who  have  become  voluntary  parties  to  the  assign- 
ment, and  have  thus  agreed  to  a  settlement  of  the  respondents' 
affairs  thereunder,  cannot  equitably  repudiate  their  agreement.  This 
view  was  taken  in  the  onhr  case  bearing  upon  the  subject  which  I 
have  been  able  to  find,  —  Perry  v.  Langley,  19  Fed.  Cas.  282,  283 
(No.  11,006)  :x 

"  If  the  proof  was  that  Perry  had  advised  the  making  of  the  assign- 
ment, or  after  its  execution  had  expressly  given  his  assent  to  it,  as  a 
creditor  of  Langlej',  he  would  have  been  precluded  from  insisting  on  it 
as  an  act  of  bankruptcy,  and  could  not  have  maintained  a  standing  in 
this  court  as  a  petitioning  creditor." 

The  petition  was  filed  January  28,  1899.  On  February  14,  Breit- 
stein,  a  creditor  of  the  respondents,  appeared  and  sought  to  join  in  the 

i  This  has  been  uniformly  held  in  many  cases  in  England  and  America.  Rem- 
ington, Bankruptcy,  §  221  &c.  ;  Simonson  v.  Sinsheimer,  95  Fed.  Rep.  948  (C.  C.  A.)  ; 
Despres  v.  Galbraith,  213  Fed.  190. 

Assent  given  in  ignorance  of  facts  making  the  assignment  fraudulent  will  not  estop 
the  creditor.  Exparte  Marshall,  1  Mont.  D.  &  De  G.  575  ;  Ex  parte  Hallowell,  3  Mont. 
&  Ayr.  538;  Re  Curtis,  94  Fed.  Rep.  630  (C.  C.  A.).  See  also  Leidigh  Carriage  Co. 
v.  Stengel,  95  Fed.  Rep.  637  (C.  C.  A.)  ;  Canner  v.  Tapper  Co.,  168  Fed.  519  (C.  C.  A.). 

An  agreement  to  compromise  which  has  not  been  carried  out  does  not  work  an 
estoppel.  Ex  parte  Foster,  22  Ch.  D.  797  ;  Artman  v.  Truby,  130  Pa.  619  ;  Simonson 
v.  Sinsheimer,  95  Fed.  Rep.  948  (C.  C.  A.). 


CHAP.  III.]  IN   RE   MINER.  115 

petition.  The  respondents  object  that  he  cannot  be  counted  in  making 
up  the  necessar}*  number  of  creditors  required  by  section  59  of  the 
bankrupt  act.  Paragraph  /'of  that  section  reads  as  follows:  — 

"Creditors  other  than  original  petitioners  may,  at  any  time,  enter 
their  appearance,  and  join  in  the  petition,  or  file  au  answer,  and  be 
heard  in  opposition  to  the  prayer  of  the  petitioners." 

Those  who  are  permitted  to  "join  in"  a  petition,  b}'  so  doing  com- 
monly become  parties  to  it;  and  the  words  ''join  in  the  petition,"  as 
used  in  paragraph  e  and  paragraph  b  of  the  same  section,  plainly  carry 
that  implication.  It  is  urged  by  the  respondents  that,  if  this  construc- 
tion be  given  to  paragraph  f,  an  insufficient  number  of  creditors,  or 
creditors  having  an  insufficient  amount  of  claims,  may  file  a  petition 
against  a  debtor,  and  obtain  an  adjudication  by  subsequently  procuring 
other  creditors  to  join  with  them,  such  joinder  being  possible  at  any 
time  before  the  petition  is  dismissed.  This  practice,  it  is  said,  would 
permit  a  petition,  at  the  time  of  its  filing  insufficient  in  substance  as 
well  as  in  form,  to  be  made  good  by  subsequent  acts.  It  must  be 
admitted  that  there  is  weight  in  this  argument,  but  the  language  of  the 
act  is  clear ;  and  the  inconvenience,  if  inconvenience  there  be,  was  not 
deemed  by  Congress  a  controlling  consideration  in  the  act  of  1867  (see 
Rev.  St.  §§  5021,  5025),  nor  in  some  cases,  at  least,  under  the  act  of 
1898.  ^  See  section  59  b.  I  think,  therefore,  that  creditors,  otherwise 
competent  to  appear  and  join  in  a  petition  subsequent  to  its  filing,  ma}' 
be  reckoned  in  making  up  the  number  of  creditors  and  amount  of  claims 
required  b}'  section  59.  , 

The  respondents  further  object  that  Breitstein's  appearance  was  en- 
tered more  than  four  months  after  the  act  of  bankruptc}'  complained 
of;  but  this  seems  immaterial.  Section  3  b  provides  that  the  petition 
may  be  filed  within  four  months  of  the  act  of  bankruptcy.  The  petition 
was  filed  on  January  29,  and  that  remains  the  date  of  its  filing,  though 
some  petitioners  have  joined  in  it  subsequent!}'  thereto.  For  instance, 
the  date  of  bankruptcy  is  defined  by  section  1  subd.  10.  to  be  the  date 
when  the  petition  was  filed.  If  an  adjudication  is  made  in  this  case, 
the  date  of  bankruptcy  will  be  January  29,  though  the  adjudication  be 
made  upon  the  petition  of  one  or  more  creditors  who  joined  therein  in 
the  month  of  February.  Respondents  adjudged  bankrupt. 


IN  RE  MINER. 
DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS. 

[Reported  in  104  Federal  Reporter,  520.] 

LOWELL,  District  Judge.    In  this  case  the  respondents  made  a  gen- 
eral assignment,  which  has  been  assented  to  by  all  the  creditors,  with 


116  IN   RE   MINER.  f_CHAP.  III. 

two  or  three  exceptions.  One  of  the  non-assenting  creditors  has  filed 
this  petition  alone,  alleging  that  all  the  creditors  of  the  respondents 
are  less  than  twelve  in  number,  thus  seeking  to  bring  himself  within 
section  59  b.  It  was  admitted  at  the  argument  that  the  creditors  who  had 
assented  to  the  assignment  could  not  join  in  the  petition,  but  it  was  urged 
that  they  should  be  counted  in  reckoning  the  number  of  the  respond- 
ents' creditors.  Under  the  act  of  June  22,  1874  (18  Stat.  178,  §  12), 
it  was  held  that  preferred  creditors  should  not  be  reckoned,  in  comput- 
ing the  proportion  of  creditors  required  to  join  in  a  petition.  In  re 
Israel,  Fed.  Gas.  No.  7,111 ;  Clinton  v.  Mayo,  Fed.  Cas.  No.  2,899  ; 
In  re  Currier,  2  Low.  436,  Fed.  Cas.  No.  3,492.1  In  the  last  case  Judge 
Lowell  said,  "  I  add,  therefore,  to  the  reasons  already  given  why  the 
debt  of  Dana  &  Co.  should  not  be  counted,  that  they  ought  not  to  join 
in  this  petition."  The  learned  judge  thus  considered  that  onlj-  those 
creditors  who  can  join  in  a  petition  should  be  reckoned  in  computing 
the  proportion  who  must  join  in  order  to  make  the  petition  valid.  This 
is  in  accordance  with  the  language  of  the  statute ;  for  otherwise  the 
word  "  creditors,"  in  the  first  line  of  section  59  b,  would  have  a  dif- 
ferent meaning  from  the  same  word  in  the  third  line  of  the  same  clause. 
Again  in  the  same  clause  it  is  said  that  "  one  of  such  creditors  "  (that 
is  to  say,  one  of  the  creditors  who  are  less  than  12  in  number)  may  file 
a  petition,  thus  plainh"  implying  that  the  creditors  who  ma}*  file  a 
petition  are  identical  with  the  creditors  whose  number  is  to  be  reckoned. 
It  is  not  necessary  to  decide  if  the  general  assignment  here  made  be 
a  preference.  In  West  Co..  v.  Lea,  174  U.  S.  590,  19  Sup.  Ct.  836,  43 
L.  Ed.  1098,  1  Nat.  Bankr.  N.  409,  a  general  assignment  is  said  to  be 
repugnant  to  the  policy  of  the  bankruptcy  law,  and  to  show  an  intent 
to  delay,  defeat,  and  hinder  the  execution  of  the  act.  See  also  In  re 
Gutwilfig,  1  Nat.  Bankr.  N.  554,  34  C.  C.  A.  377,  92  Fed.  337.  If 
this  assignment  had  provided  for  a  preference,  the  petitioners'  case 
would  be  clearly  on  that  ground.  If  the  debtor  is  not  thrown  into 
bankruptcy,  their  preference  stands,  and  the  law  is  evaded.  In  re 
Israel,  supra.  Here,  if  the  debtor  is  not  thrown  into  bankruptcj-,  the 
assignment  stands,  and  the  law  is  evaded.  Even  if  a  preference  be 
morally  less  objectionable  than  a  general  assignment,  }Tet  I  am  of 
opinion  that  the  latter  is  so  objectionable  to  the  spirit  of  the  act  that 
those  creditors  who  have  assented  to  it  are  within  the  scope  of  the  re- 
marks made  concerning  preferred  creditors  in  the  cases  above  cited. 
For  these  reasons,  because  such  is  the  letter  of  the  act,  because  such 
was  the  construction  of  an  analogous  provision  in  the  act  of  1867,  and 
because  such  seems  to  me  the  fair  intent  of  the  act  as  a  whole,  I  hold 
that  the  creditors  who  have  assented  to  the  assignment  are  not  to  be 
reckoned  in  the  computation  required  by  section  59  b.  Adjudication  to 
be  made.2 

1  Stevens  v.  Nave-McCord  Co.,  150  Fed.  71  (C.  C.  A.),  ace. 

2  See  also  Leighton  v.  Kennedy,  129  Fed.  737  (C.  C.  A.) ;  Re  Blount,  142  Fed.  263; 
Be  Jacobsoii,  181  Fed.  870. 


CHAP.  III.]  IN   RE   BRINCKMANN.  117 


IN  RE  BRINCKMANN. 
DISTRICT  COURT  FOR  THE  DISTRICT  OF  INDIANA,  JULY  9,  1900. 

[Reported  in  103  Federal  Reporter,  65.] 

BAKER,  District  Judge.  On  May  3,  1900,  George  P.  Chadwick,  of 
Laporte  County,  Ind.,  filed  a  petition  in  involuntary  bankruptcy  against 
Robert  Brinckmann,  of  the  same  county  and  State.  The  petition 
alleges  that  Chadwick  is  a  creditor  of  said  Brinckmann,  having  prov- 
able claims  amounting  in  the  aggregate,  in  excess  of  securities  held 
by  him,  to  the  sum  of  $500,  and  that  the  creditors  of  said  Brinckmann 
are  less  than  twelve  in  number.  The  petitioner  alleges  that  the  debt 
owing  by  the  alleged  bankrupt  to  himself  is  a  judgment  rendered 
January  29,  1900,  by  the  circuit  court  of  Marshall  County,  Ind.,  for 
$1,250,  for  a  wilful  and  malicious  injury  to  the  person  of  the  petitioner 
committed  by  said  Brinckmann  on  July  15,  1899.  He  alleges  that 
there  is  interest  due  on  said  judgment  from  the  date  of  its  rendition, 
and  costs  of  suit  taxed  in  said  cause,  amounting  to  $140.20.  The 
petitioner  alleges  that  said  Brinckmann  is  insolvent,  and  that  within  four 
months  next  preceding  the  date  of  the  filing  of  his  petition  said 
Brinckmann  committed  acts  of  bankruptcy,  in  that  he  did  on  January 
3  and  15,  1900,  convey,  mortgage,  and  transfer  all  of  his  real  and  per- 
sonal property  to  Louisa  Brinckmann,  William  Brinckmann,  Herman 
Brinckmann,  and  James  F.  Gallaher,  with  intent  to  prefer  them  as 
creditors  over  his  other  creditors,  and  especially  the  petitioner,  and 
that  said  Brinckmann  also  conveyed,  transferred,  and  concealed  his 
property  with  intent  to  hinder,  delay,  and  defraud  his  creditors.  Said 
Brinckraann  filed  an  answer  putting  in  issue  all  the  material  aver- 
ments of  the  petition.  The  court  has  heard  the  evidence  adduced  by 
the  respective  parties,  and  is  of  opinion  that  the  petitioner  was  not  a 
creditor  of  the  alleged  bankrupt  at  the  time  that  the  acts  of  bank- 
ruptcy were  committed.  It  is  shown  by  the  evidence,  without  dispute, 
that  the  case  of  the  petitioner  against  the  alleged  bankrupt  for  the 
recovery  of  damages  for  the  malicious  and  wrongful  assault  and  battery 
was  not  tried  until  January  13,  1900,  on  which  day  the  jury  returned 
a  verdict  in  his  favor  for  $1,250,  on  which  verdict  on  January  29, 
1900,  a  judgment  was  rendered  for  the  amount  of  the  verdict  and 
costs  by  the  Circuit  Court  of  Marshall  County,  Ind.  No  one  except  a 
creditor  can  maintain  a  petition  in  involuntary  bankruptcy.  The 
petitioner  in  this  case  at  the  time  of  the  commission  of  the  alleged 
acts  of  bankruptcy  was  not  a  creditor  having  a  provable  claim  against 
the  alleged  bankrupt.  Section  1,  cl.  9,  of  the  bankruptcy  act  defines  a 
"creditor"  as  follows: 

"(9)  Creditor  shall  include  any  one  who  owns  a  demand  or  claim 
provable  in  bankruptcy  and  ma}'  include  his  duly  authorized  agent, 
attorney  or  proxy." 


118  IN   RE    BRINCKMANN.  [CHAP.  III. 

Section  63,  cl.  "  b,"  provides  as  follows : 

"  (b)  Unliquidated  claims  against  the  bankrupt  may,  pursuant  to 
application  to  the  court,  be  liquidated  in  such  manner  as  it  shall  direct 
and  may  thereafter  be  proved  and  allowed  against  his  estate." 

The  petitioner's  claim  at  the  time  the  alleged  acts  of  bankruptcy 
were  committed  was  unliquidated.  He  had  not  at  that  time  reduced 
his  claim  for  damages  for  a  tort  into  judgment.  It  remained  an  un- 
liquidated claim  until  judgment  was  rendered  on  the  verdict.  In  the 
case  of  Beers  v.  Hanlin,  3  Am.  Bankr.  R.  745,  99  Fed.  695,  it  is  held 
that  an  unliquidated  claim  is  not  a  provable  debt  in  bankruptcy,  and 
one  arising  out  of  tort  must  first  be  reduced  to  judgment,  or,  pursuant 
to  application  to  the  court,  be  liquidated,  as  the  court  shall  direct,  in 
order  to  be  proved  ;  and  it  is  further  held  that  where  the  only  alleged 
creditor  is  one  who  had  an  unliquidated  claim  for  tort,  not  reduced 
to  judgment  at  the  time  of  an  alleged  preferential  transfer,  he  is  not 
a  creditor  who  can  insist  that  such  transfer  is  an  act  of  bankruptcy. 
The  case  of  Ex  parte  Charles,  14  East,  197,  16  Ves.  256,  is  a  much 
stronger  case  against  the  petitioning  creditor  than  the  case  last  cited. 
The  case  was  sent  by  Lord  Chancellor  Eldon  to  the  Court  of  King's 
Bench.  The  facts  stated  \>y  the  chancellor  for  the  opinion  of  the  court 
were  that  an  action  upon  the  case  was  brought  by  Mary  Howell 
against  one  John  Charles  for  breach  of  promise  of  marriage,  in  which 
she  obtained  a  verdict  on  December  5,  1808,  for  £150,  in  damages. 
On  December  25,  1808,  the  act  of  bankruptcy  was  committed  by  an 
assignment  by  the  alleged  bankrupt  of  all  of  his  effects.  Judgment 
on  the  verdict  was  entered  January  31,  1809.  On  February  4,  1809, 
Mary  Howell  petitioned  for  a  commission  of  bankruptcy,  which  issued 
on  February  21,  1809,  upon  the  debt  evidenced  by  her  judgment. 
The  case  was  elaborately  argued  before  the  entire  court  on  the  certi- 
ficate sent  to  it  by  the  chancellor ;  the  question  being  whether  or  not 
Mary  Howell,  at  the  time  of  the  commission  of  the  alleged  act  of 
bankruptcy,  owned  a  provable  debt,  and  was  a  creditor,  within  the 
true  construction  of  the  bankruptcy  act.  The  court  unanimously 
certified  to  the  chancellor  that  the  debt  was  not  a  sufficient  debt  to 
support  a  commission.  Afterwards,  in  the  sittings  after  Trinity 
Term,  1812,  upon  the  petition  of  the  bankrupt,  the  commission  was 
superseded,  with  costs.  In  Scott  v.  Ambrose,  3  Maule  &  S.  327, 
Lord  Chief  Justice  Ellenborough  said  that  all  the  courts  in  Westmin- 
ister Hall  had  concurred  in  the  doctrine  of  the  case  of  Ex  parte 
Charles.  The  petitioner  not  having  been  a  creditor  owning  a  prov- 
able claim  at  the  time  of  the  commission  of  the  alleged  acts  of  bank- 
ruptcy, cannot  maintain  his  present  petition.  It  will  therefore  be 
dismissed  at  the  costs  of  the  petitioner.1 

1  An  unliquidated  contract  claim  will  support  a  petition.  Grant  Shoe  Co.  v.  Laird, 
212  U.  S.  445. 

As  to  the  sufficiency  of  contingent  claims,  see  Ex  parte  Paget,  1  Gl.  &  J.  100 ;  Sigsby 
v.  Willis,  3  B.  R.  207 ;  Phillips  v.  Dreher  Shoe  Co.,  1 12  Fed.  404 ;  Swarts  v.  Siegel,  117 
Fed.  13;  Re  Rothenberg,  140  Fed.  798. 


CHAP.   III.]      IN   RE  HALSEY   ELECTRIC   GENERATOR  CO.  119 


STROHEIM  v.  PERRY  &  WHITNEY  CO. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  FIRST  CIRCUIT,  JANUARY,  1910. 

[Reported  in  1 75  Federal  Reporter,  52.] 

PUTNAM,  Circuit  Judge : 

This  is  a  case  of  an  involuntary  petition  in  bankruptcy  against  the 
Lewis  F.  Perry  &  Whitney  Company.  The  petition  was  dismissed  by 
the  District  Court  on  the  ground  that  not  sufficient  creditors  joined 
therein  to  satisfy  the  requirement  of  the  statute.  Thereupon  the  peti- 
tioners, or  some  of  them,  appealed  to  us. 

As  the  case  stood,  the  statute  required  that  three  creditors  should 
unite  in  the  petition.  Apparently  three  did  so  unite  at  the  outset, 
Stroheim  &  Romann,  one  Skelly,  and  one  Beaumont. 

Putting  on  the  claims  of  Skelly  and  Beaumont  the  best  face  possible 
for  the  petitioning  creditors,  the  facts  are  as  follows :  The  petition  was 
filed  on  September  23,  1908.  On  September  10,  1908,  a  sister  of  Stro- 
heim held  several  notes  of  the  debtor.  At  that  time  she  transferred  to 
Skelly  one  note  without  any  substantial  consideration,  for  the  sole  pur- 
pose of  enabling  her  brother's  copartnership  to  secure  a  sufficient  num- 
ber of  creditors  to  proceed  with  the  bankruptcy  petition.  Beaumont 
came  into  possession  of  another  note  under  the  same  circumstances  and 
for  the  same  reason.  Evidently  they  were  not  creditors  when  they 
joined  the  petition,  because  evidently  the  whole  transaction  was  purely 
colorable,  and  the  notes  still  belonged  to  Stroll  eim's  sister.  Therefore 
they  could  not  lawfully  make  the  required  oath  to  the  involuntary  peti- 
tion. We  concur  fully  with  the  conclusion  of  the  learned  judge  of  the 
District  Court  so  far  as  these  two  signatures  are  concerned.1 


IN  RE  HALSEY  ELECTRIC  GENERATOR  CO. 

DISTRICT  COURT  FOR  THE  DISTRICT  OF  NEW  JERSEY,  JULY,  1908. 

[Reported  in  163  Federal  Reporter,  118.] 

LANNING,  District  Judge : 

The  petitioners  are  James  P.  Murray,  Charles  H.  Williams,  Howard 
H.  Williams,  George  F.  Van  Slyck,  and  William  M.  Clark.  The  claim 
of  Howard  H.  Williams  was  assigned  to  him  by  his  father,  Charles  H. 
Williams,  and  constitutes  but  a  part  of  the  original  claim  of  the  father. 
Charles  H.  Williams  is  a  petitioner  for  the  unassigned  part  of  his 

1  Only  a  portion  of  the  opinion  is  printed. 


120  IN  HE   HALSEY   ELECTRIC   GENERATOR   CO.        [CHAP.    III. 

original  claim.  It  is  contrary  to  the  policy  of  the  Bankruptcy  Act  to 
permit  a  creditor  to  split  up  his  claim  against  the  debtor  and  assign 
some  of  the  parts  to  other  persons  for  the  purpose  of  qualifying  them 
as  joint  petitioners  in  a  bankruptcy  proceeding.  In  re  Tribelhorn, 
14  Am.  B.  R.  492,  137  Fed.  3,  69  C.  C.  A.  601 ;  Leighton  v.  Kennedy, 
12  Am.  B.  R.  229,  129  Fed.  737,  64  C.  C.  A.  265 ;  In  re  Independent 
Thread  Co.  (D.  C.),  7  Am.  B.  R.  704,  113  Fed.  998.  It  follows  that 
Howard  H.  Williams  cannot  be  counted  as  a  petitioning  creditor. 

It  also  appears  that  Murray  and  Van  Slyck  each  hold  an  assigned 
claim,  that  neither  of  them  has  any  financial  interest  in  the  claim  held 
by  him,  and  that  each  of  them  holds  his  claim  solely  for  the  benefit  of 
his  assignor.  This  fact,  however,  does  not  disqualify  either  of  them 
as  a  petitioning  creditor.  The  assignments  were  made  by  persons 
who  originally  claimed  to  be  separate  creditors  of  the  alleged  bankrupt 
for  the  respective  amounts  of  the  claims  assigned.  Murray  and  Van 
Slyck  are  trustees  for  their  respective  assignors,  and,  as  they  hold  the 
legal  title  to  the  claims  assigned,  they  are  the  owners  of  those  claims, 
and,  if  they  be  valid  claims,  are  creditors.1 

1  Only  a  portion  of  the  opinion  is  printed. 


SECT.  I.]  STATUTE   13   ELIZABETH,   C.  5.  121 

CHAPTER  IV. 
ACTS  OF  BANKRUPTCY. 


SECTION   I. 
FRAUDULENT  CONVEYANCES.1 

STATUTE  13  ELIZABETH,  c.  5.     1570. 

FOR  the  avoiding  and  abolishing  of  feigned,  covinous  and  fraudulent 
feoffments,  gifts,  grants,  alienations,  conveyances,  bonds,  suits,  judg- 
ments and  executions,  as  well  of  lands  and  tenements  as  of  goods  and 
chattels,  more  commonly  used  and  practised  in  these  da}-s  than  hath 
been  seen  or  heard  of  heretofore  :  (  2  )  which  feoffments,  gifts,  grants, 
alienations,  conveyances,  bonds,  suits,  judgments  and  executions,  have 
been  and  are  devised  and  contrived  of  malice,  fraud,  covin,  collusion  or 
guile,  to  the  end,  purpose  and  intent,  to  delay,  hinder  or  defraud 
creditors  and  others  of  their  just  and  lawful  actions,  suits,  debts, 
accounts,  damages,  penalties,  forfeitures,  heriots,  mortuaries  and  reliefs, 
not  only  to  the  let  or  hinderance  of  the  due  course  and  execution  of  law 
and  justice,  but  also  to  the  overthrow  of  all  true  and  plain  dealing,  bar- 
gaining and  chevisance  between  man  and  man,  without  the  which  no 
commonwealth  or  civil  society  can  be  maintained  or  continued : 

II.  Be  it  therefore  declared,  ordained  and  enacted  by  the  authority 
of  this  present  parliament,  That  all  and  every  feoffment,  gift,  grant, 
alienation,  bargain  and  conveyance  of  lands,  tenements,  hereditaments, 
goods  and  chattels,  or  of  any  of  them,  or  of  any  lease,  rent,  common 
or  other  profit  or  charge  out  of  the  same  lands,  tenements,  heredita- 
ments, goods  and  chattels,  or  any  of  them,  by  writing  or  otherwise, (2) 
and  all  and  every  bond,  suit,  judgment  and  execution,  at  any  time  had 
or  made  sithence  the  beginning  of  the  Queen's  majesty's  reign  that  now 
is,  or  at  any  time  hereafter  to  be  had  or  made,  (3)  to  or  for  any  intent 
or  purpose  before  declared  and  expressed,  shall  be  from  henceforth 
deemed  and  taken  (  only  as  against  that  person  or  persons,  his  or  their 
heirs,  successors,  executors,  administrators  and  assigns,  and  every  of 
them,  whose  actions,  suits,  debts,  accounts,  damages,  penalties,  forfeit- 
ures, heriots,  mortuaries  and  reliefs,  by  such  guileful,  covinous  or 
fraudulent  devices  and  practices,  as  is  aforesaid,  are,  shall  or  might  be 
in  any  wise  disturbed,  hindred,  delayed  or  defrauded)  to  be  clearly  and 
utterly  void,  frustrate  and  of  none  effect ;  any  pretence,  colour,  feigned 

l  For  convenience  of  treatment  the  subject  of  conveyances  fraudulent  as  to  creditors 
is  dealt  with  in  this  section  as  a  whole. 


122  STATUTE   13   ELIZABETH,    C.  6.  [CHAP.  IV. 

consideration,  expressing  of  use,  or  any  other  matter  or  thing  to  the 
contrary  notwithstanding. 

III.  And  be  it  further  enacted  by  the  authority  aforesaid,  That  all 
and  every  the  parties  to  such  feigned,  covinous  or  fraudulent  feoffment, 
gift,  grant,  alienation,  bargain,  conveyance,  bonds,  suits,  judgments, 
executions  and  other  things  before  expressed,  and  being  privy  and 
knowing  of  the  same,  or  any  of  them  ;  (  2  )  which  at  any  time  after  the 
tenth  day  of  June  next  coming  shall  wittingly  and  willingly  put  in  ure, 
avow,  maintain,  justify  or  defend  the  same,  or  any  of  them,  as  true, 
simple,  and  done,  had  or  made  bona  fide  and  upon  good  consideration  ; 
(3  )  or  shall  alien  or  assign  any  the  lands,  tenements,  goods,  leases  or 
other  tilings  before- mentioned,  to  him  or  them  conveyed  as  is  aforesaid, 
or  any  part  thereof ;  (  4  )  shall  incur  the  penalty  and  forfeiture  of  one 
year's  value  of  the  said  lands,  tenements  and  hereditaments,  leases, 
rents,  commons  or  other  profits,  of  or  out  of  the  same;  (5)  and  the 
whole  value  of  the  said  goods  and  chattels ;  (  6 )  and  also  so  much 
money  as  are  or  shall  be  contained  in  any  such  covinous  and  feigned 
bond  ;  (7)  the  one  moiet}'  whereof  to  be  to  the  Queen's  majesty,  her 
heirs  and  successors,  and  the  other  moiet}1  to  the  party  or  parties  grieved 
by  such  feigned  and  fraudulent  feoffment,  gift,  grant,  alienation,  bar- 
gain, conveyance,  bonds,  suits,  judgments,  executions,  leases,  rents, 
commons,  profits,  charges  and  other  things  aforesaid,  to  be  recovered 
in  an}-  of  the  Queen's  courts  of  record  b}-  action  of  debt,  bill,  plaint  or 
information,  wherein  no  essoin,  protection  or  wager  of  law  shall  be 
admitted  for  the  defendant  or  defendants;  (8)and  also  being  thereof 
lawfully  convicted,  shall  suffer  imprisonment  for  one  half  3'ear  without 
bail  or  mainprise. 

VI.  Provided  also,  and  be  it  enacted  bj*  the  authority  aforesaid, 
That  this  act,  or  anything  therein  contained,  shall  not  extend  to  an}r 
estate  or  interest  in  lands,  tenements,  hereditaments,  leases,  rents, 
commons,  profits,  goods  or  chattels,  had,  made,  convej'ed  or  assured, 
or  hereafter  to  be  had,  made,  conveyed  or  assured,  which  estate  or 
interest  is  or  shall  be  upon  good  consideration  and  bona  fide  lawfully 
conveyed  or  assured  to  any  person  or  persons,  or  bodies  politick  or 
corporate,  not  having  at  the  time  of  such  convej'ance  or  assurance  to 
them  made,  any  manner  of  notice  or  knowledge  of  such  covin,  fraud 
or  collusion  as  is  aforesaid  ;  anything  before  mentioned  to  the  contrary 
hereof  notwithstanding. l 

*  It  is  generally  held  that  such  conveyances  as  are  within  this  statute  would  be 
invalid  without  the  aid  of  a  statute.  Co.  Litt.  2906;  Cadogan  v.  Kennett,  2  Cowp. 
432;  Baker  v.  Humphrey,  101  U.  S.  494,  499;  Anderson  v.  Hooks,  9  Ala.  704 ;  Allen 
v.  Bundle,  50  Conn.  9,  32 ;  Peck  v.  Land,  2  Ga.  1,  10;  Ewing  v.  Bunkle,  20  111.  448, 
461  ;  Gardner  v.  Cole,  21  la.  205,  210;  Doyle  v.  Sleeper,  1  Dana,  531,  533;  Hall  r. 
Sands,  52  Me.  358;  Blackman  v.  Wheaton,  13  Minn.  326,  330;  Edmonson  v.  Meacham, 
50  Miss.  34  ;  Sands  v.  Cod  wise,  4  Johns.  536 ;  Seymour  v.  Wilson,  19  N.  Y.  417,  420  ; 
O'Daniel  v.  Crawford,  4  Dev.  197,  202  ;  Clark  v.  Douglass,  62  Pa.  408,  416  ;  Hudnal 
v.  Wilder,  4  McCord,  294;  Bussell  v.  Stinson,  3  Hayw.  1,  5;  Davis  v.  Turner,  4  Gratt. 
422. 


SECT,  i.]  TWYNE'S  CASE.  123 

* 

SECTION   I.  (continued), 
(a)    SALES  AND  TRANSFERS  FOR  VALUE. 

TWYNE'S  CASE. 
STAB  CHAMBER,  1602. 
[Reported  in  3  Coke,  80  b.] 

IN  an  information  by  Coke,  the  Queen's  Attorney  General,  against 
Twyne  of  Hampshire,  in  the  Star-Chamber,  for  making  and  publishing 
of  a  fraudulent  gift  of  goods,  the  case  on  the  stat.  of  13  Eliz.  cap.  5, 
was  such:  Pierce  was  indebted  to  Twyne  in  four  hundred  pounds,  and 
was  indebted  also  to  C.  in  two  hundred  pounds.  C.  brought  an  action 
of  debt  against  Pierce,  and  pending  the  writ,  Pierce  -being  possessed  of 
goods  and  chattels  of  the  value  of  three  hundred  pounds,  in  secret 
made  a  general  deed  of  gift  of  all  his  goods  and  chattels  real  and 
personal  whatsoever  to  Twyne,  in  satisfaction  of  his  debt ;  notwith- 
standing that  Pierce  continued  in  possession  of  the  said  goods,  and 
some  of  them  he  sold  ;  and  he  shore  the  sheep,  and  marked  them  with 
his  own  mark :  and  afterwards  C.  had  judgment  against  Pierce,  and 
had  a.  fieri  facias  directed  to  the  Sheriff  of  Southampton,  who  by  force 
of  the  said  writ  came  to  make  execution  of  the  said  goods ;  but  divers 
persons,  by  the  command  of  the  said  Tw}Tne,  did  with  force  resist  the 
said  Sheriff,  claiming  them  to  be  the  goods  of  the  said  Twyne  by  force 
of  the  said  gift ;  and  openl}7  declared  by  the  commandment  of  Tw3Tne, 
that  it  was  a  good  gift,  and  made  on  a  good  and  lawful  consideration. 
And  whether  this  gift  on  the  whole  matter  was  fraudulent  and  of  no 
effect  by  the  said  act  of  13  Eliz.  or  not,  was  the  question.  And  it  was 
resolved  by  Sir  THOMAS  EGERTON,  Lord  Keeper  of  the  Great  Seal,  and 
by  the  Chief  Justice  POPHAM  and  ANDERSON,  and  the  whole  court  of 
Star  Chamber,  that  this  gift  was  fraudulent,  within  the  statute  of  13 
Eliz.  And  in  this  case  divers  points  were  resolved  : 

1st.  That  this  gift  had  the  signs  and  marks  of  fraud,  because  the 
gift  is  general,  without  exception  of  his  apparel,  or  any  thing  of 
necessity  ;  for  it  is  commonly  said,  quod  dolus  versatur  in  generalibus. 

2d.  The  donor  continued  in  possession  and  used  them  as  his  own  ; 
and  by  reason  thereof  he  traded  and  trafficked  with  others,  and 
defrauded  and  deceived  them. 

3d.  It  was  made  in  secret,  et  dona  clandestina  sunt  semper 
suspiciosa. 

4th.     It  was  made  pending  the  writ. 

5th.  Here  was  a  trust  between  the  parties,  for  the  donor  possessed 
all,  and  used  them  as  his  proper  goods,  and  fraud  is  always  apparelled 
and  clad  with  a  trust,  and  a  trust  is  the  cover  of  fraud. 


124  TWYNE'S  CASE.  [CHAP.  iv. 

6th.  The  deed  contains,  that  the  gift  was  made  honestly,  truly,  and 
bonafide  /  et  clausulce  inconsuetf  semper  inducunt  suspicionem. 

Secondly,  it  was  resolved,  that  notwithstanding  here  was  a  true  debt 
due  to  Twyne,  and  a  good  consideration  of  the  gift,  yet  it  was  not 
within  the  proviso  of  the  said  act  of  13  Eliz.  b}'  which  it  is  provided, 
that  the  said  act  shall  not  extend  to  an}-  estate  or  interest  in  lands, 
&c.  goods  or  chattels  made  on  a  good  consideration  and  bonafide  /  for 
although  it  is  on  a  true  and  good  consideration,  yet  it  is  not  bonafide, 
for  no  gift  shall  be  deemed  to  be  bona  fide  within  the  said  proviso 
which  is  accompanied  with  any  trust;  as  if  a  man  be  indebted  to  five 
several  persons,  in  the  several  sums  of  twenty  pounds,  and  hath  goods 
of  the  value  of  twenty  pounds,  and  makes  a  gift  of  all  his  goods  to  one 
of  them  in  satisfaction  of  his  debt,  but  there  is  a  trust  between  them, 
that  the  donee  shall  deal  favorably  with  him  in  regard  of  his  poor 
estate,  either  to  permit  the  donor,  or  some  other  for  him,  or  for  his 
benefit,  to  use  or  have  possession  of  them,  and  is  contented  that  he 
shall  pay  him  the  debt  when  he  is  able  ;  this  shall  not  be  called  bona 
fide  within  the  said  proviso  ;  for  the  proviso  saith  on  a  good  considera- 
tion, and  bonafide  /  so  a  good  consideration  doth  not  suffice,  if  it  be 
not  also  bonafide  /  and  therefore,  reader,  when  an\*  gift  shall  be  to  you 
in  satisfaction  of  a  debt,  by  one  who  is  indebted  to  others  also ;  1st, 
Let  it  be  made  in  a  public  manner,  and  before  the  neighbors,  and  not 
in  private,  for  secrecy  is  a  mark  of  fraud.  2d,  Let  the  goods  and 
chattels  be  appraised  by  good  people  to  the  very  value,  and  take  a  gift 
in  particular  in  satisfaction  of  3'our  debt.  3d,  Immediately  after  the 
gift,  take  the  possession  of  them  ;  for  continuance  of  the  possession 
in  the  donor  is  a  sign  of  trust.  And  know,  reader,  that  the  said 
words  of  the  proviso,  on  a  good  consideration,  and  bona  fide,  do  not 
extend  to  every  gift  made  bona  fide ;  and  therefore  there  are  two 
manners  of  gifts  on  a  good  consideration,  sci'l.  consideration  of  nature 
or  blood,  and  a  valuable  consideration.  As  to  the  first,  in  the  case 
before  put,  if  he  who  is  indebted  to  five  several  persons,  to  each  party 
in  twenty  pounds,  in  consideration  of  natural  affection,  gives  all  his 
goods  to  his  son,  or  cousin,  in  that  case,  forasmuch  as  others  should 
lose  their  debts,  &c.  which  are  things  of  value,  the  intent  of  the  act 
was,  that  the  consideration  in  such  case  should  be  valuable  ;  for  equity 
requires  that  such  gift,  which  defeats  others,  should  be  made  on  as 
high  and  good  consideration  as  the  things  which  are  therebj*  defeated 
are;  and  it  is  to  be  presumed,  that  the  father,  if  he  had  not  been 
indebted  to  others,  would  not  have  dispossessed  himself  of  all  his 
goods,  and  subjected  himself  to  his  cradle ;  and  therefore  it  shall  be 
intended  that  it  was  made  to  defeat  his  creditors  ;  and  if  consideration 
of  nature  or  blood  should  be  a  good  consideration  within  this  proviso, 
the  statute  would  serve  for  little  or  nothing,  and  no  creditor  would  be 
sure  of  his  debt.  And  as  to  gifts  made  bona  fide,  it  is  to  be  known, 
that  every  gift  made  bonafide,  either  is  on  a  trust  between  the  parties, 
or  without  any  trust,  every  gift  made  on  a  trust  is  out  of  this  proviso ; 


SECT.  I.]  TWYNE'S  CASE.  125 

for  that  which  is  betwixt  the  donor  and  the  donee,  called  a  trust  per 
nomen  speciosum,  is  in  truth,  as  to  all  the  creditors,  a  fraud,  for  they 
are  thereby  defeated  and  defrauded  of  their  true  and  due  debts.  And 
every  trust  is  either  expressed,  or  implied ;  an  express  trust  is,  when 
in  the  gift,  or  upon  the  girt,  the  trust  by  word  or  writing  is  expressed  : 
a  trust  implied  is,  when  a  man  makes  a  gift  without  any  consideration, 
or  on  a  consideration  of  nature,  or  blood  only  :  and  therefore,  if  a  man 
before  the  stat.  of  27  H.  8  had  bargained  his  land  for  a  valuable 
consideration  to  one  and  his  heirs,  by  which  he  was  seised  to  the  use  of 
the  bargainee ;  and  afterwards  the  bargainer,  without  a  consideration, 
infeoffed  others,  who  had  no  notice  of  the  said  bargain ;  in  this  case 
the  law  implies  a  trust  and  confidence,  and  they  shall  be  seised  to  the 
use  of  the  bargainee  :  so  in  the  same  case,  if  the  feoffees,  in  considera- 
tion of  nature,  or  blood,  had  without  a  valuable  consideration  enfeoffed 
their  sons,  or  any  of  their  blood  who  had  no  notice  of  the  first  bargain, 
yet  that  shall  not  toll  the  use  raised  on  a  valuable  consideration  ;  for  a 
feoffment  made  only  on  consideration  of  nature  or  blood  shall  not  toll 
an  use  raised  on  a  valuable  consideration  but  shall  toll  an  use  raised  on 
consideration  of  nature,  for  both  considerations  are  in  cequali  jure, 
and  of  one  and  the  same  nature. 

And  when  a  man,  being  greatly  indebted  to  sundr}'  persons,  makes  a 
gift  to  his  son,  or  any  of  his  blood,  without  consideration,  but  only  of 
nature,  the  law  intends  a  trust  betwixt  them,  scil.  that  the  donee  would, 
in  consideration  of  such  gift  being  voluntarily  and  freely  made  to  him, 
and  also  in  consideration  of  nature,  relieve  his  father,  or  cousin,  and 
not  see  him  want  who  had  made  such  gift  to  him,  vide  33  H.  6.  33,  by 
Prisot,  if  the  father  enfeoffs  his  son  and  heir  apparent  within  age  bona 
fide,  yet  the  lord  shall  have  the  wardship  of  him :  so  note,  valuable 
consideration  is  a  good  consideration  within  this  proviso ;  and  a  gift 
made  bona  fide  is  a  gift  made  without  any  trust  either  expressed  or 
implied :  by  which  it  appears,  that  as  a  gift  made  on  a  good  considera- 
tion, if  it  be  not  also  bona  fide,  is  not  within  the  proviso ;  so  a  gift 
made  bona  fide,  if  it  be  not  on  a  good  consideration,  is  not  within  the 
proviso ;  but  it  ought  to  be  on  a  good  consideration,  and  also  bona 
fide. 

To  one  who  marvelled  what  should  be  the  reason  that  acts  and 
statutes  are  continually  made  at  every  parliament  without  intermission, 
and  without  end ;  a  wise  man  made  a  good  and  short  answer,  both 
which  are  well  composed  in  verse. 

"Quseritur,  ut  crescunt  tot  magna  volumina  legis  ? 
In  promptu  causa  est,  creseit  in  orbe  dolus." 

And  because  fraud  and  deceit  abound  in  these  daj's  more  than  in 
former  times,  it  was  resolved  in  this  case  by  the  whole  court,  that  all 
statutes  made  against  fraud  should  be  liberally  and  beneficially 
expounded  to  suppress  the  fraud.  .  .  . 


126  EDWARDS   V.   HARBEN.  [CHAP.  IV. 

EDWARDS   v.  HARBEN. 
KING'S  BENCH,    1788. 

[Reported  2  Term  Reports,  587.] 

ASSUMPSIT  for  goods  sold  to  the  defendant's  testator.  The  defendant 
pleaded  that  he  was  not  executor,  nor  had  ever  administered  as 
such;  and,  secondly,  that  he  had  fully  administered,  &c.  Replication, 
that  he  had  administered  divers  goods,  dec.  of  the  testator;  and  issue 
thereon.  And  to  the  second  plea,  that  the  defendant,  at  the  time  of 
exhibiting  the  plaintiffs  bill,  had,  and  still  has,  goods  and  chattels  of 
the  deceased  in  his  hands  sufficient  to  satisfy  the  plaintiff's  demands ; 
and  issue  thereon.  At  the  trial  of  the  last  assizes  at  East-Grinstead, 
Sussex,  a  verdict  was  found  for  the  plaintiff,  with  £22  18s.  Qd. 
damages,  and  40s.  costs,  subject  to  the  opinion  of  this  court  on  the 
following  case.  William  Tempest  Mercer  in  his  lifetime,  and  before 
the  time  of  the  execution  of  the  bill  of  sale  hereinafter  mentioned,  was 
indebted  to  the  plaintiff  in  the  sum  of  £22  18s.  Qd.  for  goods  sold  and 
delivered,  which  sum  still  remains  due  to  the  plaintiff.  William 
Tempest  Mercer,  at  the  time  of  the  execution  of  the  said  bill  of  sale, 
was  likewise  indebted  to  the  defendant  in  the  sum  of  £191  for  money 
lent.  On  the  27th  of  March,  1786,  Tempest  Mercer  offered  to  the 
defendant  a  bill  of  sale  of  his  goods,  household  furniture,  and  stock  in 
trade,  in  his  house  at  Lewes,  by  way  of  security  for  the  said  debt. 
The  defendant  refused  to  accept  of  the  same,  unless  he  should  be  at 
Iibert3*  to  enter  upon  the  effects  and  sell  them  immediate^'  after  the 
expiration  of  fourteen  days  from  the  execution  thereof,,  in  case  the 
mone}'  should  not  be  sooner  paid  ;  to  which  Tempest  Mercer  agreed, 
and  accordingly  on  the  same  da}*  executed  a  bill  of  sale  in  the  common 
form,  by  which  Mercer  bargained  and  sold  to  the  defendant  for  ever 
his  household  furniture,  medicines,  stock  in  trade  [particularly  specif}7- 
ing  them],  and  all  and  every  other  the  goods,  chattels,  and  effects  what- 
soever, in  and  about  his  dwelling-house  and  premises  at  Lewes.  Imme- 
diately upon  the  execution  of  the  bill  of  sale,  possession  was  delivered 
to  the  defendant  in  the  manner  described  therein,  viz.,  by  the  delivery 
of  one  corkscrew  in  the  name  of  the  whole,  but  in  no  other  manner 
whatsoever.  All  the  effects  described  in  the  bill  of  sale  remained  in 
the  possession  of  William  Tempest  Mercer  until  the  time  of  his  deatht 
which  happened  on  the  7th  of  April,  1786.  On  the  8th  of  April,  1786, 
being  before  the  expiration  of  fourteen  da}ys  from  the  execution  of  the 
bill  of  sale,  the  defendant  entered  and  took  possession  of  the  effects 
contained  in  the  bill  of  sale,  being  then  in  the  house  of  the  deceased, 
and  afterwards  sold  the  same  for  £236  7s.  5(7.  William  Tempest 
Mercer  died  intestate ;  and  no  letters  of  administration  were  taken  out 
to  the  deceased  by  the  defendant,  or  by  any  other  person,  before  the 
commencement  of  this  action.  The  question  for  the  opinion  of  the 
court  is,  Whether  the  defendant  be  entitled  to  retain  the  produce  of 


SECT.  1.]  EDWARDS    V.    HAKBEN.  12T 

the  said  effects,  or  at  least  the  value  of  £191,  the  consideration  of  the 
said  bill  of  sale  ;  or  whether  the  bill  of  sale  be  void  as  against  the 
creditors  of  William  Tempest  Mercer ;  and  the  plaintiff  in  this  action 
be  entitled  to  recover  his  debt  of  £22  18s.  6d.  against  the  defendant, 
as  executor  de  son  tort? 

Partington,  for  the  plaintiff. 

Steele,-  for  the  defendant. 

BULLER,  J.  This  is  an  action  brought  by  the  plaintiff,  who  is  a 
creditor  of  Mercer,  against  the  defendant  as  executor.  It  does  not 
appear  by  the  case  that  any  other  goods  than  those  mentioned  in 
the  bill  of  sale  came  to  the  defendant's  hands.  The  bill  of  sale  is 
dated  on  the  27th  March,  1786,  and  is  a  general  bill  of  sale  of  all  the 
defendant's  household  furniture  and  stock  in  trade.  This  bill  of  sale  is 
to  take  effect  immediately  on  the  face  of  it :  but  there  was  an  agree- 
ment between  Mercer  and  the  defendant,  that  the  goods  should  not  be 
sold  till  the  expiration  of  fourteen  days  from  the  date  of  its  execution  ; 
and  no  possession  was  actually  taken  till  after  the  death  of  Mercer, 
which  happened  within  the  fourteen  days :  but  there  was  a  formal 
.delivery  of  a  corkscrew  in  the  name  of  the  whole.  On  this  case  two 
questions  arise :  First,  whether  this  bill  of  sale  be  void  or  not ;  and 
secondl}",  if  void,  whether  the  defendant  by  having  taken  these  goods 
under  the  bill  of  sale,  made  himself  liable  as  an  executor  de  son  tort. 
The  first  question  came  before  the  court  in  the  late  term  in  the  case  of 
Bamford  v.  Baron,  on  a  motion  for  a  new  trial  from  the  Northern 
circuit ;  and  after  hearing  that  case  argued,  we  thought  it  right  to  take 
the  opinion  of  all  the  judges  upon  it.  Accordingly  we  consulted  with 
all  the  judges,  who  are  unanimously  of  opinion  that  unless  possession 
accompanies  and  follows  the  deed,  it  is  fraudulent  and  void  ;  I  lay 
stress  upon  the  words  "accompanies  and  follows,"  because  I  shall 
mention  some  cases  where,  though  possession  was  not  delivered  at  the 
time,  the  conveyance  was  not  held  to  be  fraudulent.  There  are  many 
cases  on  this  subject ;  from  which  it  appears  to  me  that  the  principle 
which  I  have  stated  never  admitted  of  any  serious  doubt.  So  long  ago 
as  in  the  case  in  Bulstrode,  the  court  held  that  an  absolute  convej-ance 
or  gift  of  a  lease  for  years,  unattended  with  possession,  was  fraudulent ; 
but  if  the  deed  or  conveyance  be  conditional,  there  the  vendor's  con- 
tinuing in  possession  does  not  avoid  it,  because  by  the  terms  of  the 
conveyance  the  vendee  is  not  to  have  the  possession  till  he  has  per- 
formed the  condition.  Now  here  the  bill  of  sale  was  on  the  face  of  it 
absolute,  and  to  take  place  Immediately,  and  the  possession  was  not 
delivered ;  and  that  case  makes  the  distinction  between  deeds  or  bills 
of  sale  which  are  to  take  place  immediately,  and  those  which  are  to 
take  place  at  some  future  time.  For  in  the  latter  case  the  possession 
continuing  in  the  vendor  till  that  future  time,  or  till  that  condition  is 
performed,  is  consistent  with  the  deed  ;  and  such  possession  comes 
within  the  rule,  as  accompanying  and  following  the  deed.  That  case 
has  been  universally  followed  by  all  the  cases  since.  One  of  the 


128  EDWARDS   V.   HARBEN.  [CHAP.  IV. 

strongest  is  quoted  in  Bucknal  and  Others  v.  Roiston,  Pr.  in  Chan. 
287  ;  there  one  Brewer,  having  shipped  a  cargo  of  goods,  borrowed  of 
the  plaintiff  £600  on  bottom ly,  and  at  the  same  time  made  a  bill  of 
sale  of  the  goods,  and  of  the  produce  and  advantage  thereof,  to  the 
plaintiff.  There  Sir  E.  Northey  cited  a  case,  "  where  a  man  took  out 
execution  against  another ;  by  agreement  between  them  the  owner  was 
to  keep  the  possession  of  them  upon  certain  terms,  and  afterwards 
obtained  another  judgment  against  the  same  man,  and  took  the  goods 
in  execution ;  and  it  was  held  that  he  might,  and  that  the  first  execu- 
tion was  fraudulent  and  void  against  any  subsequent  creditor,  because 
there  was  no  change  of  the  possession,  and  so  no  alteration  made  of 
the  property."  And  he  said  it  had  been  ruled  forty  times  in  his 
experience  at  Guildhall,  that,  if  a  man  sells  goods,  and  still  continue 
in  possession  as  visible  owner  of  them,  such  sale  is  fraudulent  and  void 
as  to  creditors,  and  that  the  law  has  been  alwaj's  so  held.  The  Lord 
Chancellor  held  in  the  principal  case  that  the  trust  of  those  goods 
appeared  upon  the  very  face  of  the  bill  of  sale.  That  though  they 
were  sold  to  the  plaintiffs,  yet  they  trusted  Brewer  to  negotiate  and 
sell  them  for  their  advantage,  and  Brewer's  keeping  possession  of 
them  was  not  to  give  a  false  credit  to  him  as  in  other  cases  which  had 
been  cited,  but  for  a  particular  purpose  agreed  upon  at  the  time  of  the 
sale.  So  that  the  Chancellor  in  that  case  proceeded  on  the  distinction 
which  I  have  taken ;  he  supported  the  deed,  because  the  want  of 
possession  was  consistent  with  it.  This  has  been  argued  by  the  defend- 
ant's counsel  as  being  a  case  in  which  the  want  of  possession  is  only 
evidence  of  fraud,  and  that  it  was  not  such  a  circumstance  per  se  as 
makes  the  transaction  fraudulent  in  point  of  law :  that  is  the  point 
which  we  have  considered,  and  we  are  all  of  opinion  that  if  there  be 
nothing  but  the  absolute  conveyance  without  the  possession,  that  in 
point  of  law  is  fraudulent.  On  the  other  hand  there  are  cases  where 
the  vendor  has  continued  in  possession,  and  the  bill  of  sale  has  not 
been  adjudged  fraudulent,  if  the  want  of  immediate  possession  be  con- 
sistent with  the  deed.  Such  was  the  case  of  Lord  Cadogau  v. 
Kennet,  Cowp.  432,  because  there  the  possession  followed  the  deed. 
So  also  the  case  of  Haselinton  and  Another  v.  Gill,  Tr.  24  Geo.  3, 
B.  R.  post.  3,  vol.  620  n,  and  another,  sheriff  of  Middlesex ;  there 
personal  property,  consisting  (inter  alia)  of  some  cows,  was  settled  on 
the  marriage  of  the  plaintiff's  wife  on  certain  trusts ;  and  the  court 
held  that  only  those  which  were  purchased  after  the  marriage  could  be 
taken  to  satisfy  the  debts  of  the  husband.  The  second  question  then 
is,  Whether  the  defendant's  having  taken  possession  of  these  goods 
after  Mercer's  death,  though  under  the  bill  of  sale,  will  make  him  an 
executor  de  son  tort?  The  two  cases,  which  were  cited  by  the  plain- 
tiffs counsel,  are  decisive  of  this  point.  In  2  Bac.  Abr.  605,  it  is  said, 
"  If  a  man  make  a  deed  of  gift  of  his  goods  in  his  lifetime  by  covin  to 
oust  his  creditors  of  their  debts,  yet  after  his  death  the  vendee  shall 
be  charged  for  them."  There  too  the  possession  was  delivered  to  the 


SECT.  I.]  EDWARDS   V.   HAKBEN.  129 

vendee.  To  support  this  doctrine,  13  H.  4.  4.  b,  Rol.  Abr.  549,  are 
both  quoted.  Then  in  what  manner  shall  he  be  charged?  He  can 
only  be  charged  as  executor;  because  any  intermeddling  with  the 
intestate's  effects  makes  him  so.  The  cases  in  Cro.  Jac.  and  Yelv. 
cited  at  the  bar  prove  it,  and  state  the  manner  in  which  he  shall  be 
charged.  There  is  also  another  strong  case  on  this  point  in  Dyer  (Dy. 
166  b).  In  short,  every  intermeddling  after  the  death  of  the  party 
makes  the  person  so  intermeddling  an  executor  de  son  tort,  Vid.  ante 
97.  S.  P. 

GROSE,  J.,  observed  that  it  was  unnecessary  to  repeat  what  had  been 
said  from  the  bench,  but  said  that  he  was  perfectly  satisfied  that  the 
law  was  as  had  been  stated.  Postea  to  the  plaintiff. 

The  court  then  made  the  rule  absolute  for  granting  a  new  trial  in 
the  case  of  Bamford  v.  Baron.1 

1  In  many  jurisdictions  in  this  country  it  is  enacted  or  judicially  decided  that 
retention  by  the  seller  of  the  possession  of  personal  property  after  a  sale  is  conclusive 
proof  of  fraud.  CAM  FORNIA,  Civ.  Code,  §  3440  ;  George  v.  Pierce,  123  Cal.  172  ;  COLO- 
RADO, 1  Mills  Annot.  Stats.,  §  2027;  Stanley  v.  Citizens' Coal  Co.,  24  Col.  103;  CON- 
NECTICUT, Hatstal  v.  Blakeslee,  41  Conn.  302;  Huebler  v.  Smith,  62  Conn.  186; 
DELAWARE,  Code,  c.  LXIII.  §4;  Bowman  v.  Herring,  4  Harr.  458;  IDAHO,  Rev. 
Stat.  §  3021 ;  Harkness  v.  Smith,  2  Idaho,  952  ;  Hallett  v.  Parrish,  51  Pac.  Rep.  109; 
ILLINOIS,  Bass  v.  Pease,  79  111.  App.  308;  IOWA,  Code,  §  1923;  Harris  v.  Pence, 
91  la.  481  ;  KENTUCKY,  Morton  v.  Ragan,  5  Bush,  334  (conf. Vanmeter  v.  Estill,  78  Ky. 
456);  MARYLAND,  Code,  Art.  21,  §40;  Franklin  v.  Claflin,  49  Md.  24;  MISSOURI, 
Rev.  Stats.  1889,  §  5178 ;  State  v.  Goetz,  131  Mo.  675;  Revercomb  v.  Duker,  74  Mo. 
App.  570 ;  MONTANA,  Civ.  Code,  §  4491  ;  Yank  v.  Bordeaux,  23  Mont.  205  ;  NEVADA, 
Comp.  Laws,  §  292  ;  Estey  v.  Cooke,  12  Nev.  276;  Tognini  v.  Kyle,  17  Nev.  209 ;  NEW 
HAMPSHIRE,  Coolidge  v.  Melvin,  42  N.  H.  510;  Parker  v.  Marvell,  60  N.  H.  30 ; 
OKLAHOMA,  Stats.  §  2663 ;  PENNSYLVANIA,  Stephens  v.  Gifford,  137  Pa.  219 ;  Garretson 
v.  Hackenburg,  144  Pa.  107  ;  Lehr  v.  Brodbeck,  192  Pa.  535  (conf.  Ditman  v.  Raule, 
124  Pa.  225) ;  SOUTH  DAKOTA,  Comp.  Laws,  §  4657;  Howard  v.  Dwight,  8  S.  Dak. 
398;  UTAH,  Comp.  Laws,  1888,  §  2837;  White  v.  Pease,  15  Utah,  170;  VERMONT. 
Weeks  v.  Prescott,  53  Vt.  57 ;  Wheeler  v.  Selden,  63  Vt.  429  ;  WASHINGTON,  Gen. 
Stats.  §  1454;  Whiting  Mfg.  Co.  v.  Gephart,  6  Wash.  615.  So  in  ONTARIO,  Rev. 
Stat.  Ont.  c.  119,  §5;  McMaster  v.  Garland,  31  Up.  Can.  C.  P.  320.  The  Federal 
courts  apply  the  law  of  the  State  where  the  transaction  took  place.  Dooley  v.  Pease, 
60  U.  S.  App.  248.  See  further,  Williston  Sales,  §  353  et  seq. 

In  Illinois  this  rule  does  not  apply  where  retention  of  possession  is  consistent  with 
the  provisions  of  the  deed  of  transfer  or  bill  of  sale.  Bass  v.  Pease,  79  111.  App.  308. 
But  generally  in  these  States  there  is  no  such  limitation  to  the  rule.  See  statutes 
cited  above  and  Swift  v.  Thompson,  9  Conn.  63  ;  Coolidge  v.  Melvin,  42  N.  H.  510 ; 
Stephens  p.  Gifford,  137  Pa.  219;  Post  Publishing  Co.  v.  Insurance  Co.,  189  Pa.  301. 

It  is  immaterial  that  the  objecting  creditor  had  knowledge  of  the  sale.  Bassinger 
i'  Spangler,  9  Col.  175,  186  ;  Harkness  v.  Smith,  2  Idaho,  952  ;  Lawrence  v.  Burnham, 
4  Nev.  361 ;  Warwick  Iron  Co.  v.  First  Nat.  Bank,  13  At.  Rep.  79  (Pa.) ;  Hart  v. 
Farmer's  Bank,  33  Vt.  252,  263  ;  Perrin  v.  Reed,  35  Vt.  28  ;  contra,  Lowe  v.  Matson, 
140  111.  108 ;  Sachler  Carriage  Co.  v.  Dryden,  71  111.  App.  583  ;  Vanmeter  v.  Estill,  78 
Ky.  456.  In  the  case  last  cited  the  creditor  gave  credit  after  notice,  and  this  was 
relied  on  as  the  ground  of  decision.  In  the  other  cases  this  was  not  the  case,  but 
apparently  the  time  when  the  claim  arose  was  not  regarded  as  material. 

By  the  statutes  of  Iowa,  Maryland,  Washington,  and  Ontario,  if  a  bill  of  aale  is 
recorded,  the  transaction  is  valid  though  the  vendee  retains  possession,  in  analogy  to 
the  common  provisions  in  regard  to  chattel  mortgages. 


130  MAKTINDALE    V.    BOOTH.  [CHAP.  IV. 


MARTINDALE  v.    BOOTH. 

KING'S  BENCH,  1832. 
[Reported  in  3  Barnewall  Sf  Adolphus,  498.] 

TRESPASS  for  taking  away  and  converting  furniture,  goods,  and  chat- 
tels of  the  plaintiffs.  Plea,  not  guilty.  At  the  trial  before  Lord  TEN- 
TERDEN,  C.  J. ,  at  the  Middlesex  Sittings  after  Trinity  Term  1829,  the 
jury  found  a  verdict  for  the  plaintiffs  for  £93,  16s.,  subject  to  the  opin- 
ion of  this  court  on  the  following  case  :  —  * 

Before  the  8th  of  May,  1828,  one  W.  G.  Priest,  who  kept  the  Peacock 
Tavern  in  Maiden  Lane,  Middlesex,  was  indebted  to  the  plaintiffs,  wine 
and  spirit  merchants,  in  £10  for  wine  and  spirits.  Priest  having  applied 
to  them  for  a  further  supply  of  wine  upon  credit,  and  for  a  loan  of  money, 
the  plaintiffs  refused  to  give  him  any  further  credit,  or  to  lend  him  an}* 
money  unless  he  would  give  them  satisfactory  security.  Priest  then 
proposed  to  execute  a  bill  of  sale  to  them  of  the  furniture  and  fixtures 
in  the  Peacock  Tavern  as  such  security,  and  the  plaintiffs  agreed  to  give 
him  credit  thereupon  to  the  extent  of  £200.  After  Priest  and  the  plain- 
tiffs had  agreed  to  give  and  accept  such  security,  but  before  the  bill  of 
sale  was  actually  executed,  the  plaintiffs,  upon  the  faith  of  such  agree- 
ment, advanced  to  Priest  £30  in  money,  and  to  the  amount  of  £60  in 
wine  and  spirits,  and  in  two  days  afterwards,  viz.  the  8th  of  May,  1828, 
in  pursuance  of  the  agreement,  Priest  executed  and  delivered  to  the 
plaintiffs  a  bill  of  sale,  reciting  that  he,  Priest,  was  indebted  to  the 
plaintiffs  in  the  sum  of  £100  for  money  advanced  and  goods  sold  and 
delivered,  and  stating  that,  in  consideration  thereof,  he  granted,  bar- 
gained, sold,  and  assigned  unto  the  plaintiffs  all  the  household  goods, 
furniture,  &c.  in  and  about  the  premises  called  the  Peacock  Tavern,  to 
hold  to  the  proper  use  and  behoof  of  the  plaintiffs  forever,  subject  to 
the  condition  thereinafter  contained  :  proviso,  that  if  Priest  should  pay 
the  said  sum  of  £100  with  lawful  interest  thereon  by  instalments,  that 
is  to  say,  £25  on  the  7th  of  June  then  next,  £25  on  the  7th  of  May  next, 
and  £50,  the  residue  thereof,  on  the  7th  of  November,  1829,  the  deed 
should  be  void  ;  but  in  default  of  payment  of  all  or  any  of  the  said  sums 
at  the  times  appointed,  then  it  should  be  lawful,  although  no  advantage 
should  have  been  taken  of  an}'  previous  default,  for  the  plaintiffs  forth- 
with to  enter  upon  the  premises,  and  take  possession  of  the  goods,  fur- 
niture, &c.,  and  absolutely  sell  and  dispose  of  the  same.  There  was  a 
power  reserved  to  the  plaintiffs,  during  the  continuance  of  the  deed,  to 
enter  upon  the  premises  and  take  an  inventory ;  and  also  at  any  time 
after  default  as  aforesaid  to  take  and  retain  possession  of  the  goods 
until  they  should  deem  it  expedient  to  sell.  Then  followed  a  proviso, 
"  that  until  default  should  be  made  in  payment  of  all  or  any  of  the  said 
sums,  it  should  be  lawful  for  Priest  to  retain  and  keep  quiet  possession 
of  all  and  singular  the  said  household  goods,"  &c. 


SECT.  I.]  MARTINDALE   V.   BOOTH.  131 

Before  Priest  commenced  dealing  with  the  plaintiffs,  he  had  married 
the  widow  of  one  Higman,  who  formerly  kept  the  Peacock  Tavern,  and 
who,  at  the  time  of  his  death,  was  indebted  to  Combe,  Delafield,  and 
Co.  in  the  sum  of  £1,100.  His  widow  being  executrix  of  his  will,  on 
her  marriage  with  Priest  the}-  both  became  possessed  of  Higraan's 
effects;  and  Priest,  by  way  of  security  for  the  said  £1,100,  executed  a 
warrant  of  attorney  to  Combe,  Delafield,  and  Co.  for  that  amount  in 
November,  1823.  On  the  1st  of  November,  1828,  Messrs.  Combe, 
Delafield,  and  Co.  caused  judgment  to  be  entered  upon  the  warrant  of 
attorne}1,  and  sued  out  a  writ  offi.fa.  directed  to  the  defendants  Booth 
and  Copeland,  then  sheriff  of  Middlesex,  who  thereupon  issued  their 
warrant  to  Wilson,  the  other  defendant,  their  officer,  and  he  seized  and 
took  in  execution  the  goods  in  question,  being  the  furniture  and  effects 
in  the  Peacock  Tavern.  While  the  sheriff  remained  in  possession,  the 
plaintiffs  came  upon  the  premises,  gave  the  defendants  notice  of  the 
bill  of  sale,  and  required  them  to  relinquish  possession,  which  was  re- 
fused, and  the  sheriff  sold  the  goods.  This  case  was  now  argued  by 

Archbold,  for  the  plaintiffs. 

Comyn,  contra. 

Lord  TENTERDEN,  C.  J.  I  am  of  opinion  that  the  deed  of  sale  was 
not  absolutely  void.  Much  has  been  said  as  to  the  secrecy  attending 
that  transfer,  but  the  observation  applies  with  equal  force  to  the  war- 
rant of  attornej*,  which  was  unknown  to  the  plaintiffs,  and  which  Coin  be 
and  Co.  forbore  to  act  upon  for  so  long  a  time.  The  consideration  for 
the  bill  of  sale  was  not  only  an  antecedent  debt,  but  a  sum  of  money  to 
be  advanced  by  the  plaintiffs  to  enable  Priest  to  carry  on  his  trade. 
The  omission  of  the  plaintiffs  to  take  possession  of  the  goods  was  per- 
fectly consistent  with  the  deed  ;  for  it  was  stipulated  that  Priest  should 
continue  in  possession  until  default  made  in  pa}'ment  of  all  or  any  of  the 
instalments,  and  that  on  such  default  it  should  be  lawful,  although  no 
advantage  should  have  been  taken  of  any  previous  default,  for  the  plain- 
tiffs to  enter  and  take  possession  of  the  household  goods  and  furniture. 
The  possession  by  Priest,  therefore,  being  consistent  with  the  deed,  and 
it  having  been  given  in  consideration  of  money  advanced  to  enable 
Priest  to  carry  on  his  trade,  I  cannot  say  that  it  was  absolutely  void. 

PARKE,  J.  I  am  of  the  same  opinion.  I  think  that  the  want  of  de- 
livery of  possession  does  not  make  a  deed  of  sale  of  chattels  absolutely 
void.  The  dictum  of  BULLER,  J.,  in  Edwards  v.  Harben,  2  T.  R.  587,  has 
not  been  generally  considered,  in  subsequent  cases,  to  have  that  import. 
The  want  of  delivery  is  only  evidence  that  the  transfer  was  colorable. 
In  Benton  v.  Thornhill,  2  Marshall,  427,  it  was  said  in  argument,  that 
want  of  possession  was  not  only  evidence  of  fraud,  but  constituted  it ; 
but  GIBBS,  C.  J.,  dissented  ;  and  although  the  vendor  there,  after  exe- 
cuting a  bill  of  sale,  was  allowed  to  remain  in  possession,  GIBBS,  C.  J., 
at  the  trial,  left  it  to  the  jury  to  say,  whether,  under  all  the  circumstances, 
the  bill  of  sale  were  fraudulent  or  not.  It  is  laid  down  in  Shcppard's 
Touchstone,  224  (7th  ed.),  "  that  a  bargain  and  sale  may  be  made  of 


132  MARTINDALE   V.   BOOTH.  [CHAP.  IV. 

goods  and  chattels  without  an}-  deliver}'  of  any  part  of  the  things  sold  ;  " 
and,  afterwards,  in  page  227,  it  is  said  "  that  the  word  gift  is  often  applied 
to  inoveable  thing*,  as  trees,  cattle,  household  stuff,  &c.,  the  property 
whereof  may  be  altered  as  well  by  gift  and  deliver}7  as  by  sale  and  grant, 
and  this  is,  or  may  be,  either  by  word  or  writing  ;  "  and  in  a  note  to  this 
passage  by  the  editor  it  is  said.  "  that,  by  the  civil  law,  a  gift  of  goods 
is  not  good  without  delivery,  yet  in  our  law  it  is  otherwise,  when  there 
is  a  deed :  also  in  a  donatio  mortis  causa,  there  must  be  a  delivery." 
Then  it  is  evident  that  the  bill  of  sale,  in  this  case,  without  delivery, 
conveyed  the  property  in  the  household  goods  and  chattels  to  the  plain- 
tiffs. It  may  be  a  question  for  a  jury,  whether,  under  the  circumstances, 
a  bill  of  sale  of  goods  and  chattels  be  fraudulent  or  not;  and  if  there 
were  any  grounds  for  thinking  that  a  jury  would  find  fraud  here,  we 
might,  this  being  a  special  case,  infer  it ;  but  there  is  no  ground  what- 
ever for  saying  that  this  bill  of  sale  was  fraudulent.  It  was  given  for  a 
good  consideration,  for  money  advanced  to  Priest  to  enable  him  to  carry 
on  his  trade,  and  his  continuance  in  possession  was  in  terms  provided 
for.  Judgment  for  the  plaintiffs.1 

1  LJTTLEDALE  and  PATTESON,  JJ.,  delivered  concurring  opinions. 

It  is  well  settled  in  England  that  retention  of  possession  by  the  seller  is  at  most 
evidence  tending  to  show  fraud.  V.  C.  Kindersley,  in  Hale  v.  Metropolitan,  &c.  Co., 
28  L.  J.  Ch.  N.  S.  777,  779,  laid  down  the  rule  as  follows :  "  With  respect  to  the  question 
whether  the  sale  was  bona  fide,  it  was  at  one  time  attempted  to  lay  down  rules  that 
particular  things  were  indelihle  badges  of  fraud,  but,  in  truth,  ever}-  case  must  stand 
on  its  own  footing ;  and  the  court  or  the  jury  must  consider  whether,  having  regard  to 
all  the  circumstances,  the  transaction  was  a  fair  one  and  intended  to  pass  the  property 
for  a  good  and  valuable  consideration."  See  also  Lindon  v.  Sharp,  6  M.  &  G.  898 ; 
Pennell  ».  Dawson,  18  C.  B.  355;  Alton  v.  Harrison,  L.  R.  4  Ch.  App.  622;  Macdona  v. 
Swiney,  8  Ir.  C.  L.  R.  73. 

The  question  has  been  made  of  much  less  importance  in  England  than  formerly, 
however,  by  the  Bills  of  Sales  Acts.  Those  now  in  force  are  41  &  42  Viet.  c.  31  ;  45 
&  46  Viet.  c.  43 ;  53  &  54  Viet.  c.  53  ;  54  &  55  Viet.  c.  35.  These  require  that  bills  of 
sale,  whether  given  in  an  absolute  sale  or  as  security,  shall  be  registered  as  a  condition 
of  their  validity  against  third  persons,  if  possession  is  not  transferred.  But  transac- 
tions effected  by  parol  are  not  within  the  scope  of  the  acts. 

In  this  country  the  prevailing  doctrine,  in  the  absence  of  statutes  is  that  retention 
of  possession  is  prima  facie  evidence  of  fraud,  but  that  the  bona  fides  of  the  transaction 
may  be  shown.  FEDERAL  COURTS,  Crawford  v.  Neal,  144  U.  S.  585  ;  ALABAMA,  Troy 
Fertilizer  Co.  v.  Norman,  107  Ala.  667  ;  ARIZONA,  Liebes  v.  Sleffy,  32  Pac.  Rep.  261  ; 
ARKANSAS,  Smith  i>.  Jones,  63  Ark.  232 ;  DISTRICT  OF  COLUMBIA,  Justh  v.  Wilson, 
19  D.  C.  529;  FLORIDA,  Briggs  v.  Weston,  36  Fla.  629 ;  GEORGIA,  Collins  v.  Taggart, 
57  Ga.  355  ;  INDIANA,  Rev.  Stat.  1881,  §  4911  ;  Seavey  v.  Walker,  108  Ind.  78;  Hig- 
gins  v.  Spahr,  145  Ind.'l67  ;  KANSAS,  Gen.  Stat.  (1889)  §  3163;  Locke  v.  Hedrick,  24 
Kan.  763 ;  LOUISIANA,  Cochrane  v.  Gibert,  41  La.  Ann.  735 ;  MAINE,  Goodwin  v. 
Goodwin,  90  Me.  23;  MASSACHUSETTS,  Brooks  v.  Powers.  15  Mass.  244;  Allen  r. 
Wheeler,  4  Gray,  123;  MICHIGAN,  Comp.  Laws  (1897)  §  9520;  Jansen  v.  McQueen, 
105  Mich.  199  ;  MINNESOTA,  Gen.  Stat.  (1894)  §  4219  ;  Cortland  Wagon  Co.  v.  Sharvy  ; 
MISSISSIPPI,  Hilliard  v.  Cagle,  46  Miss.  309  ;  NEBRASKA,  Comp.  Stat.  1881,  c.  32,  §  11 ; 
Powell  v.  Yeazel,  46  Neb.  225;  NEW  JERSEY,  Miller  v.  Pancoast,  5  Dutch.  250;  NE\V 
YORK,  Southard  v.  Benner,  72  N.  Y.  424  ;  Brown  ».  Harmon,  29  App.  Div.  31  ;  NORTH 
CAROLINA,  Rea  v.  Alexander,  5  Ired.  644  ;  Cheatham  v.  Hawkins,  80  N.  C.  161  ;  NORTH 
DAKOTA,  Rev.  Code,  §  5053 ;  Conrad  v.  Smith,  6  N.  Dak.  337  ;  OHIO,  Hombeck  v.  Van- 
metre.  9  Ohio.  153  •  Freeman  v.  Rawson,  5  Ohio  St.  1  ;  OREGON,  Code  Civ.  Proc.  §  766, 


SECT.  1.1  DARVILL  V.  TEEEY.  133 


DARVILL  y.  TERRY. 

EXCHEQUER,  MAY  7,  1861. 

[  Reported  in  6  Hurlstone  $•  Norman,  807.] 

THIS  was  an  interpleader  issue,  to  try  whether  certain  goods,  taken 
in  execution  by  the  sheriff  of  Surrey,  under  a  writ  of,/?,  fa.  issued  on  a 
judgment  recovered  by  George  Terry  (the  now  defendant)  against  one 
Beat}",  were  at  the  time  of  the  seizure  the  property  of  the  now  defend- 
ant, as  against  James  Darvill  (the  now  plaintiff.) 

At  the  trial,  before  CHANNELL,  B.,  at  the  Middlesex  Sittings  in  the 
present  term,  the  following  facts  appeared:  On  the  9th  of  January, 
1861,  Beaty  executed  a  bill  of  sale,  by  way  of  mortgage,  of  certain 
goods  in  his  possession,  as  a  security  for  £130,  previously  lent  him  by  the 
plaintiff,  and  a  further  loan  of  £160.  By  the  terms  of  the  deed  the  above 
sums  were  to  be  repaid,  with  interest  at  the  rate  of  £5  per  cent,  on  the 
29th  of  July,  1861,  and  until  default  in  payment  Beaty  was  to  keep 
possession  of  the  goods.  There  was  an  indorsement  on  the  deed  of  the 
receipt  of  the  £160  by  Beaty,  on  the  9th  of  January,  1861,  but  the 
money  was  not,  in  fact,  paid,  nor  the  execution  attested,  until  the  llth 
of  January,  the  bill  of  sale  having  remained  until  that  time  in  the  hands 
of  the  attorney  who  prepared  and  attested  it.  The  bill  of  sale  was 
registered,  under  the  17  &  18  Viet.  c.  36,  as  if  executed  on  the  9th  of 
January.  On  the  16th  of  January  Beaty  presented  a  petition  to  the 
Court  of  Bankruptc}'  for  an  arrangement  with  his  creditors,  and  obtained 
an  order  for  protection  of  his  person  and  goods  from  process  until  the 
12th  of  February.  On  the  29th  of  January  this  petition  was  dismissed, 
and  on  the  same  day  the  sheriff  seized  the  goods  of  Beaty  under  a  writ 
ofji.fa.  issued  on  a  judgment  obtained  against  him  by  the  now  defend- 
ant. 

It  was  submitted  on  behalf  of  the  defendant,  first,  that  the  bill  of 
sale  was  not  executed  bona  fide,  and  with  the  intention  of  vesting  the 
property  in  the  goods  in  the  plaintiff,  but  was  a  mere  contrivance  for 
the  purpose  of  defeating  the  defendant's  execution,  and  consequently  void 
under  the  13  Eliz.  c.  5.  Secondly,  that  the  consideration  money  not 
having  been  paid  until  two  days  after  the  bill  of  sale  was  executed, 
there  was  no  valid  registration  under  the  17  &  18  Viet.  c.  36,  s.  I.1 

subd.  40;  McCully  v.  Swackhammer,  6  Ore.  438;  RHODE  ISLAND,  Mead  v.  Gardiner, 
13  U.  I.  257  ;  SOUTH  CAROLINA,  Pregnall  «;.  Miller,  21  S.  C.  385;  TENNESSEE,  (JrnMw 
v.  Greer,  5  Coldw.  160;  TEXAS,  Edwards  v.  Dixon,  66  Tex.  613;  Traders  Nat.  Bunk 
v.  Day,  87  Tex.  101  ;  VIRGINIA,  Davis  v.  Turner,  4  Gratt.  422  ;  Benjamin  v.  Madden, 
94  Va.  66 ;  WEST  VIRGINIA,  Bindley  v.  Martin,  28  W.  Va.  773 ;  Poling  v.  Flana- 
gan, 41  W.  Va.  191  ;  WISCONSIN,  Rev.  Stat.  (1878)  §  2310;  Densinore  Cora.  Co.  v. 
Shong,  98  Wis.  380.  See  farther,  Williston,  Sales,  §  353  et  seq. 

1  Portions  of  the  opinions  of  the  court  holding  this  registration  valid  have  been 
omitted. 


134  DARVILL   V.   TERRY.  LCHAP-  IV- 

The  learned  judge  left  it  to  the  jury  to  say  whether,  taking  all  the 
circumstances  into  consideration,  the  bill  of  sale  was  bona  fide  —  the 
transaction  it  purported  to  be,  or  merely  colorable.  If  they  were  of 
opinion  that  it  was  the  intention  of  the  parties  that  the  goods  should 
continue  to  be  the  goods  of  Beaty,  and  that  the  bill  of  sale  was  resorted 
to  for  the  purpose  of  defeating  the  defendant's  execution,  and  without 
an)-  intention  that  the  property  should  pass  to  the  plaintiff,  then  the 
bill  of  sale,  though  good  in  form,  would  be  void  ;  and  (as  described  by 
counsel)  a  mere  "  sham  "  or  contrivance  of  no  avail  in  law.  But  if  the 
jury  were  of  opinion  that  the  parties  really  intended  that  which  the 
transaction  purported  to  be,  viz.,  in  consideration  of  inonej"  advanced, 
to  pass  the  property  in  the  goods  to  the  plaintiff,  though  with  the  right 
in  Beaty  to  retain  possession  of  the  goods  until  default  in  payment  of 
the  money  advanced,  it  was  no  objection  to  the  bill  of  sale  that  the 
parties  had  come  to  that  arrangement  with  a  view  of  defeating  the 
defendant's  execution.  The  jury  found  that  the  transaction  was  bona 
fide,  and  a  verdict  was  entered  for  the  plaintiff. 

Montagu  Chambers  now  moved  for  a  rule  to  show  cause  why  a  new 
trial  should  not  be  had  on  the  ground  of  misdirection. 

POLLOCK,  C.  B.  I  am  of  opinion  that  there  ought  to  be  no  rule.  The 
objection  to  the  direction  of  the  learned  judge  is  based  on  two  grounds. 
First,  it  is  said  that  he  did  not  sufficiently  point  out  to  the  jury  that  the 
bill  of  sale,  if  given  to  defeat  a  judgment  creditor,  was  void  as  against 
him.  But  there  are  many  circumstances  under  which  a  conve}*ance  by 
a  debtor  of  his  property  is  valid,  although  its  object  is  to  defeat  cred- 
itors. The  most  remarkable  case  is  where  a  debtor  voluntarily  assigns 
over  his  property  for  the  benefit  of  his  creditors ;  and  such  assignment 
is  valid,  though  made  for  the  express  purpose  of  defeating  a  particular 
creditor.  Here,  if  the  mortgage  was  bona  fide  for  the  consideration 
of  £160,  and  the  money  was  actually  paid,  the  transaction  may  well 
be  sustained  under  the  present  view  of  the  law  (which  has  varied 
from  that  as  laid  down  in  the  earlier  cases),  although  the  intention 
was  to  defeat  an  execution  creditor.  In  the  case  of  Wood  v,  Dixie, 
7  Q.  B.  892,  Coltman,  J.,  laid  down  the  law  precisely  as  Mr.  Chambers 
says  that  it  ought  to  have  been  laid  down  in  the  present  case,  but  the 
ruling  of  the  learned  judge  was  corrected  by  the  Court  of  Queen's 
Bench.1 

MARTIN,  B.  I  am  also  of  opinion  that  there  ought  to  be  no  rule. 
The  first  point  raised  by  Mr.  Chambers  was  expressly  decided  in  the 
case  of  Wood  v.  Dixie,  7  Q.  B.  892,  which  was  determined  in  the 

1  In  this  case  COLTMAN,  J.,  told  the  jury  that  "  if  there  really  was  a  payment, 
still  if  the  intention  of  the  transaction  was  to  defeat  the  execution  creditor,  the  con- 
veyance was  void  as  against  him,"  but  the  court  held  that  a  sale  of  property  for  good 
consideration  is  not,  either  at  common  law  or  under  the  statute  13  Eliz.  c.  5,  fraudu- 
lent and  void,  merely  because  it  is  made  to  defeat  the  expected  execution  of  a  judg- 
ment creditor. 

In  accord  with  this  doctrine  are  Holbird  v.  Anderson,  5  T.  R.  235  ;  Thomas  v. 
Johnson,  137  Ind.  244;  Randall  v.  Shaw,  28  Kan.  419;  McAllister  v.  Honea,  71  Miss. 


SECT.  I.]  FRENCH   V.   MOTLEY.  135 

year  1845  ;  so  that  for  upwards  of  fifteen  years  the  law  on  this  point, 
with  respect  to  bills  of  sale,  has  been  settled.  The  precise  points  which 
has  been  raised  to-day  was  raised  in  that  case,  viz.,  whether,  where  a 
debtor  executes  a  bill  of  sale,  by  way  of  mortgage  of  his  goods,  as  a 
security  for  money  lent,  if  the  object  be  to  defeat  an  execution  creditor, 
the  bill  of  sale  is  void.  Wood  v.  Dixie  is  an  express  authority  that  it 
is  not ;  in  that  case  Coltman,  J.,  told  the  jury  that,  if  the  intention  of 
the  transaction  was  to  defeat  the  execution  creditor,  the  conveyance 
was  void  as  against  him,  and  the  Court  of  Queen's  Bench  held  that 
direction  wrong.  I  am  not  aware  of  an}'  case  in  which  the  law  so  laid 
down  has  since  been  disputed.  Mule  refused.1 


FRENCH  v.  MOTLEY. 

SUPREME  JUDICIAL  COURT  OF  MAINE,  1874. 

[Reported  in  63  Maine,  326.] 

BILL  in  equit}",  brought  under  R.  S.,  c.  61,  by  an  execution  creditor  of 
George  H.  Motley  to  compel  the  payment  of  the  debt  out  of  land  con- 
veyed by  Seth  H.  Faunce  to  Mrs.  Motley,  upon  the  ground  that  the 
property  was  purchased  by  the  husband  and  paid  for  with  his  earnings 
and  labor,  and  that  the  wife  paid  no  part  of  the  consideration  for  it. 
Mr.  Motlej'  cleared  a  piece  of  land  for  Mr.  Faunce,  and  to  compensate 
him  therefor,  these  premises  were,  by  his  direction,  conveyed  to  his 
wife,  it  having  been  originally  agreed  that  he  should  take  his  pay  for 
his  services  in  this  land.  It  was  set  up  in  defence  that  Mrs.  Motley 
had,  some  years  before,  lent  to  Mr.  Motley  money  which  she  said  came 
to  her  from  the  estate  of  a  former  husband  (Sidney  P.  Poole),  and  that 
it  was  then  agreed  that  he  should  invest  it  in  a  small  homestead  for 
her,  and  that  this  one  was  purchased  by  him  for  her,  and  as  her  agent, 
in  pursuance  of  that  arrangement ;  and  that  the  building  placed  upon 
the  land  was  bought  by  Mr.  Motley  of  John  J.  Perry,  and  paid  for 
by  Motley's  labor,  under  the  same  arrangement.  To  substantiate  her 
claim,  Mrs. Motley  produced  a  note  for  8375,  dated  at  Minot,  August 

256;  Kuykendall  v.  McDonald,  15  Mo.  416  ;  Waterbury  v.  Sturtevant,  18  Wend.  353; 
Ziegler  v.  Haudrick,  106  Pa.  87. 

For  many  other  cases  illustrating  the  right  of  a  debtor  apart  from  statute  to  prefer 
when  insolvent  favored  creditors,  either  by  absolute  payment  or  by  mortgage,  see  14 
Am.  &  Kng.  Enc.  of  Law  (2d  ed.),  226  et  seq. 

1  WILDE,  B.,  and  CHANNELL,  B.,  delivered  brief  concurring  opinions.  In  the 
course  of  the  argument  of  counsel  CHANNELL,  B.,  said  :  "  You  contended  at  the  trial 
that  the  not  taking  possession  of  the  goods  was  a  test  of  fraud.  But  this  bill  of  sale 
is  by  way  of  mortgage,  and,  although  its  object  may  have  been  to  defeat  an  execution, 
that  would  not,  of  itself,  render  the  bill  of  sale  void  :  it  is  a  fact  to  he  taken  into 
consideration,  but  is  not  conclusive.  The  13  Eliz.  c.  5  was  intended  to  apply  to 
voluntary  conveyances  for  the  purpose  of  defeatiug  creditors,  not  to  cases  where 
there  is  a  valid  consideration  for  the  conveyance." 


136  FRENCH   V.   MOTLEY.  [CHAP.  IV. 

26,  1857,  payable  on  demand  with  interest.  Upon  its  face  it  purported 
to  be  witnessed  by  Martha  Farris,  mother  of  Mrs.  Motley,  but  Mrs. 
Motley  in  her  deposition,  taken  in  her  own  behalf,  testified  that  her 
husband  wrote  Mrs.  Farris'  name  upon  the  note.  The  probate  records 
and  a  deposition  of  the  administrator  of  Poole's  estate  were  introduced 
to  show  that  the  widow  did  not^  receive  from  that  source  six  hundred 
dollars  (as  alleged  in  her  answer)  nor  quite  $375,  and  that  part  of  this 
was  not  paid  till  after  1857.  The  land  conveyed  by  Faunce  to  Mrs. 
Motley  was  valued  by  the  parties  at  $110,  which  sum  was  indorsed  on 
the  note.  The  building  bought  of  Perry  was  worth  only  about  twenty 
dollars. 

Sanderson  &  Bearce,  for  the  complainant. 

John  J.  Perry,  for  the  respondents. 

RESCRIPT.  A  husband  may  lawfully  pay  a  bona  fide  debt  due  from 
him  to  his  wife,  for  money  of  her  own  lent  to  him  after  marriage,  by 
procuring,  with  her  assent,  a  conve\-ance  to  her  by  a  third  person  of 
land  paid  for  by  him. 

When  such  conve3-ance  is  accepted  b}~  her  in  payment  of  such  debt, 
she  holds  the  land  as  if  bought  and  paid  for  by  herself  with  her  own 
money  or  means,  and  it  is  not  liable  to  be  taken  as  the  property  of  the 
husband,  to  pay  his  debts,  contracted  before  such  purchase. 

In  the  absence  of  proof  sufficient  to  establish  a  common  fraudulent 
intent  and  design  on  the  part  of  the  husband  and  wife,  his  other  cred- 
itors cannot  complain  of  his  preference  to  discharge  his  debt  to  her, 
rather  than  to  them. 

The  fact  that  the  debt  to  the  wife  has  subsisted  more  than  six  years 
prior  to  such  payment,  and  that  the  note  originally  given  for  it  is  barred 
by  the  statute  of  limitations,  is  not  conclusive  evidence  of  a  want  of 
good  faith. 

The  creditor  in  this  case  fails  to  show  to  the  satisfaction  of  the  court 
that  the  wife  should  not  be  regarded  as  the  bona  fide  purchaser,  for 
value,  of  the  property  conveyed  to  her. 

Mere  suspicion,  arising  out  of  the  relation  of  husband  and  wife,  will 
not  suffice  for  that  purpose.  Bill  dismissed  ivith  costs.1 

1  Brookville  Nat.  Bank  v.  Kimble,  76  Ind.  195 ;  City  Bank  v.  Wright,  68  la.  132 ; 
Frost  v.  Steele,  46  Minn.  1 ;  Dayton  Co.  v.  Sloan,  49  Neb.  622 ;  Manchester  v.  Tib- 
betts,  121  N.  Y.  219 ;  McConnell  v.  Barber,  86  Hun,  360  ;  McAfee  v.  McAfee,  28  S.  C. 
1 88,  ace. 

In  Martin  v.  Remington,  100  Wis.  540,  the  hnsband  had  used  his  wife's  money  in 
purchasing  real  estate  the  title  to  which  he  took  in  his  own  name.  By  statute  in  Wis- 
consin resulting  trusts  are  abolished  and  the  wife  had  no  enforceable  claim.  Never- 
theless a  conveyance  to  her  of  the  land  was  held  to  be  on  good  consideration.  To  the 
same  effect  is  Vansickle  v.  Wells,  Fargo  &  Co.,  105  Fed.  116. 


SECT.  I.]  FIRST   NATIONAL   BANK  V.   GLASS.  137 


FIRST  NATIONAL  BANK  v.   GLASS. 

UNITED  STATES  CIRCUIT  COURT  OF  APPEALS  FOR  THE  EIGHTH 'CIRCUIT, 

JANUARY  27  —  MARCH  22,  1897. 
[Reported  in  49  United  States  Appeals,  228.] 

APPEAL  from  the  Circuit  Court  of  the  United  States  for  the  First 
Division  of  the  District  of  Kansas.  Before  SANBORN  and  THAYEK, 
Circuit  Judges,  and  LOCHREN,  District  Judge. 

THIS  appeal  challenges  a  decree  which  sustained  a  demurrer  to  a  bill 
brought  by  a  judgment  creditor  to  subject  a  homestead  which  the  debtor 
had  bought  and  caused  to  be  conveyed  to  his  wife  to  the  pa3'ment  of 
the  judgment.  The  bill  disclosed  these  facts  :  The  statutes  of  Nebraska 
exempt  from  judicial  sale  a  homestead  not  exceeding  in  value  $2,000, 
consisting  of  a  dwelling-house  in  which  the  claimant  resides  and  the  land 
on  which  the  house  is  situated,  not  exceeding  one  hundred  and  sixty 
acres  in  extent.  Cobbey's  Consolidated  Statutes,  1891,  p.  430,  c.  19. 
The  constitution  of  the  State  of  Kansas  exempts  from  forced  sale  under 
process  of  law  a  homestead  not  exceeding  one  hundred  and  sixty  acres 
of  farming-land,  or  one  acre  within  the  limits  of  an  incorporated  town 
or  city,  and  all  the  improvements  thereon,  when  it  is  occupied  as  a 
residence  by  the  family  of  the  owner,  whatever  its  value  may  be.  Art. 
15,  sec.  9,  General  Statutes  of  1889,  f  235.  From  May  4,  1892,  until 
March  22,  1894,  the  appellee,  John  F.  Glass,  owned,  and  with  his  wife, 
Harriet  H.  Glass,  resided  upon  and  occupied  one  hundred  and  sixty 
acres  of  land  in  the  State  of  Nebraska  as  their  homestead.  In  May, 
1892,  Glass  purchased  of  one  Gravatte  some  fruit  trees  which  were 
planted  on  his  farm,  and  which  enhanced  its  value  $3,000.  He  gave 
Gravatte  a  span  of  horses  and  six  of  his  promissory  notes  for  these 
trees.  The  appellant,  the  First  National  Bank  of  Humboldt,  Nebraska, 
purchased  four  of  these  notes  before  their  maturit}*,  and  on  November 
19,  1894,  obtained  a  judgment  thereon  for  $2,278.44  against  John  F. 
Glass  in  an  action  which  it  had  commenced  in  the  District  Court  of 
Pawnee  County  in  the  State  of  Nebraska  on  June  24,  1893.  Glass  was 
insolvent,  and  he  had  no  property  except  the  farm  which  he  occupied 
as  his  homestead.  On  March  22,  1894,  he  sold  and  conveyed  this  farm 
to  one  Huff  for  $6,100,  and  with  that  money  he  bought  one  hundred  and 
sixty  acres  of  farming-land  in  Franklin  County  in  the  State  of  Kansas, 
and  caused  the  vendor  to  convey  it  to  his  wife.  He  and  his  wife  imme- 
diately took  possession  of  it,  and  have  ever  since  resided  upon,  occu- 
pied, and  claimed  it  as  their  homestead.  The  bank  caused  an  execution 
to  be  issued  on  its  judgment  in  1895,  and  it  was  returned  nulla  bona. 
It  then  brought  an  action  upon  this  judgment,  and  obtained  a  judgment 
in  that  action  and  a  return  of  execution  unsatisfied  in  the  District  Court 
of  Franklin  County  in  the  State  of  Kansas.  Thereupon  it  exhibited  its 
bill  in  the  court  below,  and  alleged,  in  addition  to  the  foregoing  facts 


138  FIRST   NATIONAL   BANK   V.   GLASS.  [CHAP.  IV. 

that  the  appellees  sold  their  farm  in  Nebraska,  secretly  fled  to  the  State 
of  Kansas,  and  purchased  and  took  possession  of  their  farm  in  that  State 
with  the  intent  and  for  the  purpose  of  cheating  and  defrauding  the  hank 
out  of  its  claim  against  Glass  and  for  the  purpose  of  preventing  it  from 
collecting  its  judgment  from  the  farm  in  Nebraska,  which  was  worth 
$4,100  more  than  the  value  of  an  exempt  homestead,  under  the  statutes 
of  that  State.  The  bank  prayed  for  the  sale  of  the  farm  in  Kansas  and 
for  the  application  of  the  proceeds  of  the  sale  to  the  payment  of  its 
judgment. 

Mr.  J.   W.  Deford  submitted  a  brief  for  appellant. 

Mr.  C.  A.  Smart  and  Mr.  C.  H.  Mechem  submitted  a  brief  for 
appellees. 

SANBORN,  Circuit  Judge,  after  stating  the  case  as  above,  delivered 
the  opinion  of  the  court. 

An  insolvent  debtor  may  use  with  impunit\-  an}-  of  his  property  that 
is  free  from  the  liens  and  the  vested  equitable  interests  of  his  creditors 
to  purchase  a  homestead  for  himself  and  his  family  in  his  own  name. 
If  he  takes  property  that  is  not  exempt  from  judicial  sale  and  applies  it 
to  this  purpose,  he  merel}'  avails  himself  of  a  plain  provision  of  the 
constitution  or  the  statute  enacted  for  the  benefit  of  himself  and  his 
family.  He  takes  from  his  creditors  by  this  action  nothing  in  which 
they  have  anj-  vested  right.  The  constitution  or  statute  exempting  the 
homestead  from  the  judgments  of  creditors  is  in  force  when  the}-  extend 
the  credit  to  him,  and  they  do  so  in  the  face  of  the  fact  that  he  has  this 
right.  Nor  can  the  use  of  propert}-  that  is  not  exempt  from  execution 
to  procure  a  homestead  be  held  to  be  a  fraud  upon  the  creditors  of  an 
insolvent  debtor,  because  that  which  the  law  expressly  sanctions  and 
permits  cannot  be  a  legal  fraud.  Jacoby  v.  Parkland  Distilling  Com- 
pany, 41  Minn.  227  ;  Kelly  v.  Sparks,  54  Fed.  Rep.  70 ;  Sproul  v. 
The  Atchison  National  Bank,  22  Kan.  336;  Tucker  v.  Drake,  11 
Allen  (Mass.)  145  ;  O'Donnell  v.  Segar,  25  Mich.  367  ;  North  v.  Shearn, 
15  Tex.  174;  Cipperly  v.  Rhodes,  53  111.  346;  Randall  v.  Buffing- 
ton,  10  Cal.  49 1.1  When  the  appellees  sold  their  farm  in  Nebraska, 

1  Other  decisions  holding  that  an  insolvent  debtor  may  transfer  property  which  is 
not  exempt  and  invest  the  proceeds  in  exempt  property  are,  Reeves  v.  Peterman,  109 
Ala.  366;  Kelley  v.  Connell,  110  Ala.  543;  Flask  v.  Tindall,  39  Ark.  571 ;  Goudy  v. 
Werbe,  117  Ind.  154,  163;  Meigs  v.  Dibble,  73  Mich.  101  ;  Finn  v.  Krut,  13  Tex.  Civ. 
App.  13  ;  Bell  v.  Beazley,  18  Tex.  Civ.  App.  639  ;  Bradley  v.  Gotzian,  12  Wash.  71. 
See  also  Bates  v.  Callender,  3  Dak.  256 ;  Kapernick  v.  Louk,  90  Wis.  232.  In  Corn- 
stock  v.  Bechtel,  63  Wis.  656,  the  court,  though  regarding  such  a  transaction  as  fraud- 
ulent, held  that  the  exempt  property  could  not  be  touched,  the  creditor's  only  remedy 
being  to  attack  the  transfer  of  property  which  was  not  exempt.  And  in  Riddell  v. 
Shirley,  5  Cal.  488,  the  court  held  a  creditor  entitled  to  levy  on  non-exempt  property 
conveyed  to  free  a  mortgage  on  a  homestead,  the  transferree  having  knowledge  of  the 
circumstances.  See  also  Bishop  v.  Hubbard,  23  Cal.  514. 

The  creditor  or  trustee  in  bankruptcy  was  said  to  have  a  right  against  the  homestead 
or  exempt  property  in  Pratt  v.  Burr,  5  Biss.  36 ;  Re  Boothroyd,  14  B.  R.  223  ;  He 
Parker,  18  B.  R.  43  ;  Brackett  v.  Watkins,  21  Wend.  68.  See  also  Re  Wright,  8  B.  R. 
430;  Re  Sauthoff,  16  B.  R.  181 ;  Re  Melvin,  17  B.  R.  543;  fie  Boston,  98  Fed.  Rep. 
587.  But  see  contra,  Re  Hammond,  198  Fed.  385. 


SECT.  I.]  FIRST  NATIONAL  BANK  V.   GLASS.  139 

and  bought  and  took  possession  of  their  homestead  in  Kansas,  the 
bank  had  acquired  no  lien  and  no  specific  equitable  interest  in  any 
of  the  property  of  its  debtor.  It  was  his  simple  contract  creditor, 
and  it  had  no  vested  right  in  either  his  propert}-  or  his  residence.  He 
had  the  right  to  change  his  residence  from  one  State  to  another,  and  to 
secure  for  himself  a  homestead  in  any  State  where  he  chose  to  live.  If, 
therefore,  he  had  taken  the  couve3"ance  of  his  homestead  in  Kansas  in 
his  own  name  it  would  have  been  exempt  from  the  judgment  of  the 
appellant. 

The  only  question  remaining  is  whether  the  farm  lost  this  exemption 
because  he  caused  it  to  be  conveyed  to  his  wife.  Upon  this  question 
the  authorities  are  not  in  accord.  The  Supreme  Court  of  Minnesota 
declares  that  such  a  transaction  is  a  fraud  upon  creditors  and  subjects 
the  property  so  acquired  to  the  payment  of  their  debts..  Summer  v. 
Sawtelle,  8  Minn.  309  ;  Rogers  v.  McCauley,  22  Minn.  384.  The 
Supreme  Court  of  Kansas,  on  the  other  hand,  holds  that  a  home- 
stead purchased  and  paid  for  from  the  unexerapt  property  of  the  hus- 
band is  equallj"  exempt  from  judicial  sale,  under  the  constitution  of  that 
State,  whether  the  title  is  taken  in  the  name  of  the  husband  or  in  that 
of  the  wife.  Monroe  v.  May,  9  Kan.  466,  475,  476;  Hixon  v. 
George,  18  Kan.  253,  258.  The  decisions  of  the  highest  judicial 
tribunal  of  the  State  of  Kansas,  which  we  have  cited,  settle  this  ques- 
tion in  the  case  at  bar.  The  question  involves  the  construction  and 
effect  of  the  constitution  and  statutes  of  that  State,  and  the  decisions 
of  it  by  that  court  establish  a  rule  of  property  there,  which  has  prevailed 
without  modification  for  a  quarter  of  a  century.  As  was  said  by  Mr. 
Justice  FIELD  in  Christy  v.  Pridgeon,  4  Wall.  196,  at  page  203,  in 
speaking  of  a  law  of  the  Republic  of  Mexico,  which  had  subsequently 
become,  in  effect,  a  local  law  of  the  State  of  Texas :  "  The  interpreta- 
tion, therefore,  placed  upon  it  by  the  highest  court  of  that  State,  must, 
according  to  the  established  principles  of  this  court,  be  accepted  as  the 
true  interpretation,  so  far  as  it  applies  to  titles  to  lands  in  that  State, 
whatever  may  be  our  opinion  of  its  original  soundness.  Nor  does  it 
matter  that  in  the  courts  of  other  States,  carved  out  of  territory  since 
acquired  from  Mexico,  a  different  interpretation  may  have  been  adopted. 
If  such  be  the  case,  the  courts  of  the  United  States  will,  in  conformity 
with  the  same  principles,  follow  the  different  ruling  so  far  as  it  affects 
titles  in  those  States."  The  construction,  by  the  highest  judicial  tri- 
bunal of  a  State,  of  its  constitution  or  statutes,  which  establishes  a  rule 
of  property,  is  controlling  authority  in  the  courts  of  the  United  States 
when  no  question  of  right  under  the  Constitution  and  laws  of  the  Nation, 
and  no  question  of  general  or  commercial  law,  is  involved.  Brasliear 
v.  West,  7  Pet.  608,  615 ;  Allen  v.  Massey,  17  Wall.  351  ;  Lloyd  v. 
Fulton,  91  U.  S.  479,  485  ;  Sumner  v.  Hicks,  2  Black,  532,  534 ;  Jaf- 
fray  v.  McGehee,  107  U.  S.  361,  365 ;  Peters  v.  Bain,  133  U.  S.  670, 
686  ;  Randolph's  Executor  v.  Quidnick  Company,  135  U.  S.  457 ; 
White  v.  Cotzhausen,  129  U.  S.  329 ;  Union  Bank  of  Chicago  v.  Kan- 


140  BENSON  V.  BENSON.  [CHAP.  IV. 

sas  City  Bank,  136  U.  S.  223,  235  ;  Detroit  v.  Osborne,  135  U.  S.  492 ; 
Madden  v.  County  of  Lancaster,  27  U.  S.  App.  528,  535  to  537  ;  Otten- 
berg  v.  Corner,  40  U.  S.  App.  320,  329. 

The  decree  below  is  in  accordance  with  the  constitution  and  statutes 
of  the  State  of  Kansas,  as  they  have  been  construed  by  its  Supreme 
Court,  the  property  in  controversy  is  situated  in  that  State,  and  its 
title  is  fixed  by  that  construction.  Let  the  decree  be 

Affirmed,  with  costs. 


BENSON  v.  BENSON. 
MARYLAND  COUKT  OF  APPEALS,  JANUARY  TERM,  1889. 

[Reported  in  70  Mart/land,  253.] 

STONE,  J.1  Joseph  M.  Brian  became  security  on  the  guardian  bond 
of  Thales  A.  Linthicum,  who  was  the  guardian  of  the  complainant 
Elizabeth  H.  Benson  about  the  year  1868.  The  said  Joseph  M.  Brian 
died  in  1878,  and  the  guardian  Linthicum  in  1880.  The  same  year  in 
which  he  died  Bi^an  conve\~ed  all  his  property  to  his  two  children,  a 
son  and  a  daughter.  Linthicum,  the  guardian,  died  insolvent  and 
before  an}-  final  settlement  of  his  guardian  accounts  ;  and  after  his 
death  it  was  discovered  that  he  was  largely  indebted  to  his  ward.  It 
also  turned  out  that  the  other  two  securities  on  the  guardian  bond  were 
totally  insolvent,  and  Mrs.  Benson  then  filed  the  bill  in  this  case  to  set 
aside  the  deeds  made  by  Bryan  to  his  children  as  fraudulent  and  void 
against  her ;  and  whether  these  deeds  are  fraudulent  and  void  as 
against  her  is  the  first  and  most  important  point  in  the  case. 

These  deeds  were  executed  by  Brian  a  short  time  —  a  few  months  — 
before  his  death.  The  consideration  set  forth  in  the  deed  to  his  daugh- 
ter professed  to  be  love  and  affection  ;  the  consideration  set  forth  in 
the  deed  to  his  son  was  the  sum  of  seventeen  thousand  dollars.  But 
the  son  proves  that  he  did  not  pay  his  father  a  dollar  in  money,  but 
claims  to  have  paid  subsequently  debts  due  by  his  father  to  about  that 
amount. 

The  deed  executed  by  Brian  to  his  daughter  was  for  real  estate  onty, 
and  was  executed  on  3d  September,  1878.  The  deed  to  his  son  was 
executed  on  the  following  day,  and  embraced  all  the  property,  both 
real  and  personal,  of  the  said  Joseph  M.  Brian,  except  what  he  had 
before  given  to  his  daughter. 

There  is  no  evidence  in  the  record  of  the  value  of  the  propert}'  given 
to  his  daughter,  but  there  is  evidence  of  the  value  of  the  real  estate 
given  to  his  son,  and  it  seems  to  have  been  worth  about  forty  thousand 
dollars,  or  perhaps  a  little  more.  There  was  a  considerable  amount  of 

1  A  portion  of  the  opinion  in  regard  to  the  amount  for  which  the  guardian's  bond 
could  be  enforced  is  omitted. 


SECT.  L]  BENSON   V.   BENSON.  141 

personal  property  which  passed  to  the  son  under  the  deed  to  him, 
which,  if  we  understood  his  evidence  correctly,  was  intended  as  com- 
pensation to  the  son  for  services  rendered  the  father. 

Simultaneous  with  the  execution  of  these  deeds  the  father,  Joseph 
M.  Brian,  Sen.,  entered  into  a  written  agreement  with  his  children,  by 
which  each  agreed  to  pay  him,  if  he  demanded  it,  five  hundred  dollars 
a  year.  If  he  demanded  any  mone}7  from  one  he  promised  to  demand 
an  equal  amount  from  the  other,  so  that  he  might  not  be  a  greater 
burden  on  one  than  the  other,  and  all  arrears  of  his  annuity  were  to  be 
considered  as  paid  and  settled  at  the  time  of  his  death,  so  that  his  per- 
sonal representative  (if  any)  could  make  no  claim  for  such  arrears. 
The  recital  of  these  facts  shows  conclusively  the  character  of  this  whole 
transaction. 

A  man  advanced  in  life  and  of  considerable  wealth,  about  two  months 
before  his  death,  conveys  all  his  property  to  his  children.  His  son  is 
to  pay  his  debts,  and  his  share  was  probably  for  that  reason  greater 
by  the  amount  of  such  debts,  than  his  daughter's.  The  deed  to  his 
daughter  was  confessedly  a  purely  voluntary  conveyance,  and  the  deed 
to  the  son,  upon  the  proof,  is  also  a  voluntary  conveyance.  The  son 
did  not  pa}'  a  dollar  for  the  property.  All  he  professes  to  have  done 
was  to  pay  some  debts  of  the  father,  not  amounting  at  most  to  half 
the  value  of  the  real  estate  alone  that  he  got.  It  needs  no  authority 
for  so  plain  a  proposition,  that  the  son  was  not  under  these  circum- 
stances a  purchaser  for  a  valuable  consideration  and  to  be  treated 
as  such. 

The  deeds,  the  agreement,  and  the  proof  show  that  Mr.  Brian's 
object  was  to  divide  his  property  between  his  children  in  his  lifetime, 
retaining  only  an  annuity  sufficient  for  his  wants  for  his  life. 

There  is  nothing  in  this  record  to  show  that  Mr.  Brian  contemplated 
any  fraud  whatever.  He  may  not,  and  probably  did  not,  apprehend 
any  loss  on  account  of  his  being  on  this  guardian  bond.  But  whether 
he  did  or  did  not,  these  deeds  cannot  avail  against  the  claim  of  these 
complainants,  and  must  be  declared,  as  against  them,  fraudulent  and 
void.  To  hold  otherwise  would  be  to  declare  that  an  obligor  on  a  bond 
might  always  relieve  himself,  when  loss  was  apprehended  by  giving  his 
property  to  his  wife  or  child.1 

1  The  relationship  of  parties  to  a  transaction  claimed  to  be  a  fraudulent  conveyance, 
is  often  important  evidence  with  other  circumstances,  hut,  though  in  some  cases  rules 
of  legal  presumption  are  stated,  the  better  view  seems  to  be  that  the  fact  of  relation- 
ship in  any  case  is  in  itself  of  no  legal  importance,  but  has  such  weight  as  a  fact  in  any 
case  us  the  court  or  jury  think  it  entitled  to.  Numerous  cases  bearing  oil  the  poiut 
are  collected  in  24  Century  Digest,  444  et  aeq. 


142  JAEGEE  V.  KELLEY.  [CHAP.  IV. 

JAEGER  v.  KELLEY. 

NEW  YORK  COURT  OF  APPEALS,  FEBRUARY  17-25,  1873. 
[Reported  in  52  New  York,  274.] 

APPEAL  from  judgment  of  the  General  Term  of  the  Supreme  Court 
in  the  first  judicial  department,  modifying  and  affirming  as  modified  a 
judgment  in  favor  of  plaintiff  entered  upon  a  verdict. 

This  action  was  brought  to  recover  the  value  of  1,364  gallons  of  wine 
alleged  to  have  been  unlawfully  taken  and  converted  by  defendant. 

Plaintiff  purchased  the  wine  of  one  Theodore  Lingen fender  at  ninety- 
two  and  a  half  cents  per  gallon.  He  paid  a  debt  of  Lingenfelder  of 
$250,  paid  the  duties  at  the  custom-house  and  bonded  warehouse,  and 
the  balance  he  paid  in  money.  The  wine  was  levied  upon  by  defendant, 
as  sheriff  of  the  city  and  county  of  New  York,  under  and  by  virtue  of 
an  execution  against  said  Lingenfelder  and  another. 

Further  facts  appear  in  the  opinion. 

The  court  on  trial  directed  the  jury  to  find  for  plaintiff,  submitting 
to  them  simply  the  value  of  the  property ;  to  which  defendant  duly 
expected. 

Defendant's  council  requested  the  court  to  submit  to  the  jury  the 
question  of  fraud.  The  court  refused  so  to  do  and  defendant  excepted. 
The  jury  found  for  plaintiff  as  directed.  A  motion  was  made  by  de- 
fendant for  a  new  trial  upon  the  judge's  minutes,  which  was  denied. 

J.  S.  Smith,  for  the  appellant. 

Ira  D.  Warren,  for  the  respondent. 

CHURCH,  C.  J.  The  only  question  in  the  case  is  whether  the  trial 
judge  erred  in  refusing  to  submit  to  the  jury  the  question  whether  the 
sale  of  the  wine  to  the  plaintiff  was  fraudulent  as  against  creditors. 

With  the  exception  of  the  fact  that  the  plaintiff  purchased  the  wine 
at  a  little  less  than  one-half  its  actual  value,  as  found  by  the  jury,  there 
is  no  substantial  evidence  tending  to  impeach  his  title,  and  it  is  well 
settled  that  mere  inadequacy  of  pricejs  not  sufficient.1  The  plaintiff 

1  Clark  v.  Krause,  2  Mack.  (D.  C.)  559 ;  Klemm  v.  Bishop,  56  111.  App.  613 ;  Ma- 
thews  v.  Reinhardt,  149  111.  635 ;  Cagney  v.  Cuson,  77  Ind.  494  (con/I  Hubbs  v.  Ban- 
croft, 4  Ind.  388) ;  Talbot  v.  Hooser,  12  Bush.  408 ;  Montgomery  v.  Wilson,  31  La.  Ann. 
53;  Foster  v.  Pugh,  20  Miss.  416;  Briant  v.  Jackson,  99  Mo.  585;  Knoop  v.  Kelsey, 
121  Mo.  642;  Goddard  v.  Weil,  165  Pa.  419;  McPherson  v.  McPherson,  21  S.  C.  261 ; 
Moore  v.  Lowery,  27  Tex.  541 ;  Agricultural  Assoc.  v.  Brewster,  51  Tex.  257 ;  Bierne 
v.  Ray,  37  W.  Va.  570;  Wood  v.  Harmison,  41  W.  Va.  376,  ace.  In  most  of  these 
cases,  however,  there  is  stated  some  such  qualifications  as  "  unless  the  inadequacy  is 
gross,"  or  "  unless  the  price  is  so  manifestly  inadequate  as  to  shock  the  moral  sense." 

On  the  other  hand  it  is  laid  down  by  some  courts  that  if  a  conveyance  is  made  by 
one  who  is  in  debt,  inadequacy  of  consideration  is  evidence,  though  not  conclusive,  of 
fraud.  Borland  v.  Mayo,  8  Ala.  104;  Beebe  v.  DeBaun,  8  Ark.  510;  Galbreath  v. 
Cook,  30  Ark.  41 7  ;  Washband  v.  Washband,  27  Conn.  424 ;  Gainer  v.  Russ,  20  Fla. 
157  ;  Dodson  v.  Cooper,  50  Kan.  680.  See  also  Hudgins  v.  Kemp,  20  How.  45 ;  Tyson 
v.  Southern  Cotton  Oil  Co.,  181  Ala.  256;  Flood  v.  Bollmeier,  (la.)  138  N.  W.  Rep. 
1102;  Hull  v.  Deering,  80  Md.  424;  Carson  v.  Hawley,  82  Minn.  204;  Scoggin  v. 
Schloath,  15  Ore.  380;  Monessen  Bank  v.  Lichtenstein,  207  Pa.  187;  Fisher  v.  Shel- 
ver,  53  Wis.  49« 


SECT.  I.]  JAEGER   V.   KELLEY.  143 

was  engaged  in  the  business  ;  he  paid  in  cash  the  agreed  price  and  took 
immediate  possession  of  the  property.  There  is  no  evidence  that  he 
had  any  knowledge  of  the  pecuniary  circumstances  of  Lingenfelder,  or 
that  the  latter  owed  any  other  than  the  debt  which  the  plaintiff  paid  as 
a  part  consideration  for  the  wine.  Nor  is  the  vendor's  fraudulent  in- 
tent sufficient.  The  vendee  must  be  also  implicated,  and  I  can  find  no 
fact  proved  in  the  case,  aside  from  inadequacy  of  price,  which  tends  to 
impeach  his  good  faith.  It  is  urged  that  he  prevaricated  in  his  testi- 
mony. This  cannot  be  affirmed  as  to  the  substantial  facts,  the  pur- 
chase, payment  of  the  consideration  and  taking  possession ;  and  the 
discrepancies  as  to  minor  details  are  not  important.  It  is  said  that 
Eistel,  the  broker,  who  negotiated  the  sale,  was  a  suspicious  character, 
because  the  evidence  tends  to  j?how_jjiat  his  real  name  was  Isaacs.;  but 
what  influence  this  should  have  upon  the  purchase  I  am  unable  to  see. 
It  is  also  said  that  Eistel  acted  in  the  transaction  both  for  vendor  and 
vendee,  and  that  each  is  chargeable  with  his  knowledge.  If  this  were 
so,  there  is  not  the  slightest  evidence  that  Eistel  knew  an}r  facts  which 
would  impeach  the  sale  ;  but  the  evidence  is  that  the  plaintiff  made  the 
bargain  for  himself.  Eistel  solicited  the  plaintiff  to  buy,  and  if  he  was 
an  agent  at  all,  it  was  for  the  vendor ;  and  the  assistance  he  rendered 
the  plaintiff  in  procuring  a  cellar  in  which  to  store  the  wine  does  not 
change  it.  To  invalidate  a  sale,  tangible  facts  must  be  proved,  from 
which  a  legitimate  inference  of  a  fraudulent  intent  can  be  drawn.  It  is 
not  enough  to  create  a  suspicion  of  wrong,  nor  should  a  jury  be  per- 
mitted to  guess  at  the  truth.  If  the  transaction  was  different  from 
what  the  plaintiff  proved,  it  was  incumbent  on  defendant  to  show  it. 
Giving  every  circumstance  urged  by  defendant's  counsel  its  utmost 
significance,  the  most  that  can  be  said  is,  that  there  was  a  slight  evi-  . 

dence  justifying  a  suspicion  that  the  plaintiff  was  not  a  bona  Jidejmr~J^*^c 
chaser,  but  this  would  not  justify  this  court  in  reversing  the  judgments 
The  value  of  the  wine  may  have  been  exaggerated  at  the  trial,  but  the 
defendant  offered  no  evidence  upon  the  subject,  and  he  must,  therefore, 
take  the  consequences  of  the  plaintiff's  estimate.  He  may  have  sup- 
posed that  if  the  value  was  reduced,  the  force  of  the  circumstance  of 
the  inadequacy  of  price  would  be  lessened,  and,  with  that  out  of  the 
case,  he  would  have  no  foothold.  The  wine  was  sold  by  the  sheriff  at 
public  auction  at  a  less  price  than  the  plaintiff  paid,  and  there  is  more 
reason  to  doubt  whether  the  price  paid  was  in  fact  inadequate  than  that 
it  was  purchased  in  bad  faith ;  but  the  jury  have  settled  the  question, 
and  the  defendant  cannot  now  complain. 

The  deduction  made  at  the  General  Term  was  for  the  benefit  of  the 
defendant,  and  was  based  upon  the  idea  that  the  jury  had  made  a  mis- 
take in  estimating  the  whole  value  at  two  dollars  a  gallon,  the  price 
proved.  The  cases  cited  are  not  analogous. 

The  judgment  must  be  affirmed. 

ALLEN,  GROVER  and  FOLGER,  JJ.,  concur. 

PECKHAM,  ANDREWS  and  RAPALLO,  J.J.,  dissent. 

Judgment  affirmed. 


144 


BALDWIN   V.   SHORT. 


[CHAP,  iv 


BALDWIN  v.  SHORT. 
NEW  YORK   COURT  OF  APPEALS,  JANUARY   27-FEBRUARy  24,  1891. 

[Reported  in  125  New  York,  553.] 

APPEAL  from  judgment  of  the  General  Term  of  the  Supreme  Court 
in  the  fourth  judicial  department,  entered  upon  an  order  made  December 
7,  1889,  which  affirmed  a  judgment  in  favor  of  plaintiff  entered  upon  a 
decision  of  the  court  on  trial  at  Special  Term. 

This  action  was  brought  by  plaintiff,  as  assignee  for  the  benefit  of 
creditors  of  the  firm  of  Dow,  Short  &  Co.,  to  set  aside  a  deed  executed 
by  the  defendant  Orinda  B.  Sperry,  a  member  of  said  firm,  to  the  de- 
fendant Fannie  M.  Short,  as  fraudulent  and  void  as  against  creditors. 

Zsouis  Marshall,  for  appellants. 

Martin  A.  Knapp  and  Charles  G.  Baldwin,  for  respondent. 

FINCH,  J.     The  findings  of  fact  in  this  case  establish  that  the  con- 

Pveyance  of  the  house  and  lot  to  Mrs.  Short  by  Mrs.  Sperry  was  made 
and  accepted  with  an  intent  on  the  part  of  both  grantee  and  grantor  to 
hinder,  delay,  and  defraud  the  creditors  of  the  latter.  The  conveyance 
was  not  voluntary,  for  it  was  made  in  part  in  consideration  of  a  debt  of 
about  $8,000,  which  the  findings  show  was  an  honest  debt,  and  justly 
due  to  the  grantee  from  the  grantor.  The  conclusion  of  a  fraudulent 
intent  on  the  part  of  Mrs.  Short  was,  tlierefore^ssentjal-tQ-a_rggoytiry> 
and  was  established  by  proof  that  the  balance  of  the  consideration  for 
the  transfer  was  made  up  of  a  false  and  pretended  debt  for  board  and 
washing,  which  was  wholly  fictitious  and  never  in  rfocjfci^xisted,  and 
which  both  parties  to  the  transaction  falsely  cop^o^-ftn  jo  make  up  a, 
full  andjair  consideration  for  the  conveyance.  The  existence  or  the 
falsityof  that  indebtedness  was,  therefore,  an  essential  and  vital  ele- 
ment in  the  controversy,  and  the  appellants  claim  that,  in  the  effort  to 
show  it  to  have  been  a  fabrication,  evidence  was  admitted  against  Mrs. 
Short  of  declarations  made  by  Mrs.  Speny  at  a  period  preceding  the 
conveyance,  which  bore  directl}'  upon  the  validity  of  the  disputed  debt, 
and  were  inadmissible  as  against  Mrs.  Short. 

Mrs.  Parker,  a  witness  for  the  plaintiff,  was  permitted  to  testify  that 
just  prior  to  the  assignment  she  had  a  conversation  with  Mrs.  Sperry 
in  the  absence  of  Mrs.  Short,  in  the  course  of  which  Mrs.  Sperry 
said  :  "  I  think  I  shall  sell  this  house  ;  it  costs  so  much  to  keep  it  up 
just  for  Mary's  and  my  board."  The  defendants  had  asserted  that  such 
board  was  an  honest  debt  due  to  Mrs.  Short  from  her  mother,  and  the 
plaintiff,  that  it  was  paid  and  extinguished  as  it  accrued  by  the  rent  of 
the  house,  and  that  by  agreement  the  board  was  to  be  furnished  in 
exchange  for  the  rent  which  would  otherwise  have  been  due  from  Mrs. 
Short  on  account  of  her  occupation.  The  declaration  sworn  to  by  Mrs. 
Parker  tended  to  show  the  truth  of  plaintiff's  contention,  but  was  made 
in  the  absence  of  Mrs.  Short,  constituted  no  part  of  the  res  gestce,  and 


SECT.  I.]  BALDWIN   V.   SHORT.  145 

was  inadmissible  as  against  the  grantee,  in  whose  behalf  the  objection 
was  made.  But  it  is  a  conclusive  answer  to  this  allegation  of  error  that 
.Mrs.  Short  herself,  when  examined  as  a  witness,  admitted  all  and  more 
than  what  the  objectionable  evidence  tended  to  prove.  She  acknowl- 
edged that  during  her  occupation  of  the  house  her  mother  paid  all  the 
taxes  and  insurance,  and  almost  all  the  charges  for  repairs,  and  further 
testified  :  "  I  don't  remember  saying  to  Mrs.  Sherwood  that  I  boarded 
my  mother  and  Mary  for  the  rent  of  the  house,  did  their  washing:  that 
while  I  thought  a  great  deal  of  my  sister,  I  thought  it  was  hard  I 
should  pay  the  rent  and  that  my  sister  should  receive  it :  I  would  not 
Bay  I  didn't :  I  don't  remember :  I  don't  know  when  I  said  it :  that 
was  the  arrangement  under  which  I  was  in  the  house."  She  said  again, 
at  a  later  period  of  her  examination :  "  I  had  loaned  my  mother  this 
money:  I  boarded  her  and  my  sister,  and  did  their  washing  for  this 
house ;  for  the  rent  of  the  house ;  .  .  .  I  was  not  to  pay  an}'  rent 
only  in  that  way  ;  only  to  board  them  in  that  way  and  do  their  washing, 
that  was  to  pay  my  rent,  and  that  arrangement  continued  down  to  the 
time  I  received  my  deed."  Of  course,  these  admissions  made  the 
declarations  to  Mrs.  Parker  wholly  superfluous  and  immaterial. 

Mrs.  Parker  was  also  permitted  to  narrate  other  declarations  of  Mrs. 
Sperry  made  prior  to  the  conveyance  under  objection.  These  were,  in 
substance,  that  it  was  preposterous  to  suggest  that  she  should  make 
presents  to  her  daughters  because  they  took  care  of  her  when  she  was 
sick ;  that  the}'  only  did  their  duty.  In  answer  to  the  objection  inter- 
posed in  behalf  of  Mrs.  Short  the  court  held  the  declarations  not  com- 
petent, but,  to  accommodate  the  witness,  allowed  them  to  be  detailed, 
conditioned  upon  their  being  stricken  out  if  not  made  competent.  In 
the  further  progress  of  the  trial  both  Mrs.  Short  and  Mrs.  Sperry  test- 
fled  to  the  transfer  to  the  former  by  the  latter  of  some  "  ranch  stock* 
a  few  months  before  the  assignment,  and  added  that  it  was  done  as  remu- 
neration for  the  services  rendered  during  Mrs.  Sperry's  sickness.  The 
declarations  sworn  to  by  the  witness  tended  to  show  that  the  mother 
did  not  regard  the  services  of  her  daughters  during  her  illness  as  con- 
stituting a  debt  which  she  was  in  any  manner  bound  to  repay,  and  that 
is  the  sole  element  of  value  in  the  proof.  But  exactly  that  Mrs.  Short 
herself  finsflly  admitted.  She  said  expressly  that  for  her  services  in 
the  illness  referred  to  she  neither  nsked  nor  expected  any  pay ;  that  the 
transfer  of  the  ranch  stock  was  a  present ;  that  it  was  given  to  her,  and 
so  constituted  a  gift  rather  than  a  purchase.  If  it  be  still  suggested 
that  the  declaration  proved  showed  an  existing  unwillingness  to  make 
her  a  present,  the  fact  was  both  immaterial  and  harmless,  for  the 
admitted  delay  of  at  least  eight  years  shows  the  same  thing  much  more 
forcibly  and  leaves  no  doubt  about  the  suggested  lack  of  inclination. 

But  another  class  of  evidence  was  received  under  objection.     The 
plaintiff  proved   several  instances   of  transfers   of  property   by  Mrs.  .L/^+~ 

Sperry  to  persons  other  than  Mrs.  Short  prior  to  the  conveyance  to  the 
latter,  and  it  was  objected,  in  her  behalf,  that  she  could  not  be  affected 


146  BALDWIN   V.   SHORT.  [CHAP.  IV. 

by  transactions  to  which  she  was  not  a  party  and  of  which  she  had  no 
knowledge.  But  the  plaintiff  was  bound  to  prove  the  fraudulent  intent 
of  Mrs.  Sperry,  both  as  against  herself  and  as  against  Mrs.  Short,  arid 
as  against  the  latter  by  evidence  competent  as  against  her.  The  acts 
and  transfers  of  Mrs.  Sperry  pertinent  to  the  question  of  her~intenT 
were  admissible  against  Dotn  to  establish  that  intent,  and  are  not  to  be" 
excludedTbecause  they  do  not  also  bear  upon  the  intent  of  Mrs.  Short. 
It  is  not  necessary  tuat  tue  same  tact  offered  in  ^evidence  should  tencT 
to  establish  both  intents.  If  it  proved  Mrs.  Sperry's  alone,  but  was  a 
kind  of  evidence  competent  against  Mrs.  Short,  no  error  would  follow 
its  admission.  It  would  tend  to  prove  one  branch  6f  the  issue,  leaving 
the  other  to  be  met  in  some  different  way. 

There  are  some  other  objections  to  evidence,  but  of  so  little  importance 
as  not  to  justify  discussion.  They  related  principally  to  the  declarations 
of  Mrs.  Sperry  on  the  day  of  the  assignment  and  conveyance  and  pend- 
ing the  preparation  of  those  instruments,  and  were  either  within  the  res 
gestce,  or  wholly  immaterial  in  view  of  the  ultimate  course  of  the  trial. 

The  contention  that  the  conveyance  to  Mrs.  Short  may  be  sustained 
to  the  extent  of  the  adequate  and  honest  part  of  the  consideration,  is 
fully  answered  by  authorities  which  hold  that  where  the  deed  is  fraudu- 
jent  against  creditorsjl_itjs_whollv  void  and  cannot  stand_tp  an}-  extent 
as  security  or  indemnity.  "Boyd  v.  Dunlap,  1  Johns.  Ch.  478  ;  Dewe}^ 
v.  Mover,  72  N.  Y.  70  ;  Billings  v.  Russell,  101  N.  Y.  228.  A  different 
rule  would  put  a  premium  upon  fraud. 1  Almost  invariably  some  honest 

1  Bean  v.  Smith,  2  Mason,  252 ;  Borland  v.  Walker,  7  Ala.  269  ;  Millington  v.  Hill, 
47  Ark.  301  ;  Beidler  v.  Crane,  135  111.  92 ;  Head  v.  Harding,  166  111.  353;  Seivers  u. 
Dickover,  101  Ind.  495  ;  Burch  v.  Hart,  138  Ind.  1 ;  Chapman  v.  Ransom,  44  la.  377 ; 
Liddle  v.  Allen,  90  la.  738;  Holland  v.  Cruft,  20  Pick.  321;  Thompson  v.  Bickford,  19 
Minn.  17,  23  ;  Byrnes  v.  Volz,  53  Minn.  110 ;  McLean  v.  Letchford,  60  Miss.  169  ;  Allen  v. 
Berry,  50  Mo.  90 ;  Sands  r.  Codwise,  4  Johns.  536;  Conde  v.  Hall,  92  Hun,  335; 
Alley  v.  Connell,  3  Head,  582;  Shepherd  v.  Woodfolk,  10  Lea,  593,598;  Henderson 
v.  Hunton,  26  Gratt.  926,  933;  Webb  v.  Ingham,  29  W.  Va.  389;  Ferguson  v.  Hill- 
man,  55  Wis.  181  ;  Bank  of  Commerce  v.  Fowler,  93  Wis.  241,  ace.  See  also  Clem- 
ents v.  Moore,  6  Wall.  299 ;  Re  Lansaw,  118  Fed.  365. 

In  Louisiana,  a  fraudulent  grantee  is  entitled  to  restitution  of  the  consideration 
paid  by  him  if  he  proves  that  it  inured  to  the  benefit  of  the  creditors.  Chaffe  v.  Gill, 
43  La.  Ann.  1054.  See  also  Barrow  v.  Bailey,  5  Fla.  9;  How  v.  Camp,  Walk.  Ch. 
( Mich.)  427. 

If  the  conveyance  is  only  constructively  fraudulent,  or  if  the  grantee  has  not  been  a 
participant  in  any  actual  fraud,  he  is  entitled  in  equity,  at  least,  to  reimbursement. 
Bean  v.  Smith,  2  Mason,  252;  Gordon  v.  Tweedy,  71  Ala.  202;  Lobstein  v.  Lehn, 
120  111.  555;  Wood  v.  Goff's  Curator,  7  Bush,  63;  Gardner  Bank  v.  Wheaton.  8 
Greenl.  373;  Hinkle  v.  Wilson,  53  Md.  287  ;  Cone  v.  Cross,  72  Md.  102;  Lynde  v. 
McGregor,  13  Allen,  182;  Thomas  v.  Seals,  154  Mass.  51  ;  Thompson  v.  Bickford, 
19  Minn.  17;  Borden  v.  Doughty,  42  N.  J.  Eq.  314;  Colgan  v.  Jones,  44  N.  J. 
Eq.  274;  Boyd  v.  Dunlap,  1  Johns.  Ch.  478;  Brown  v.  Chubb,  135  N.  Y.  174; 
Oliver  v.  Moore,  26  Ohio  St.  298;  McMeekin  v.  Edmonds,  1  Hill's  Ch.  (S.  C.)  288; 
Foster  v.  Foster,  56  Vt.  540 ;  Henderson  v.  Hunton,  26  Gratt.  926 ;  First  Nat.  Bank 
v.  Bertschy,  52  Wis.  439.  See  also  Taylor  v.  Atwood,  47  Conn.  498,  507 ;  Skiles's 
Appeal,  110  Pa.  248  Barber  v.  Coit,  144  Fed.  381. 

In  Loos  v.  Wilkinson,  113  N.  Y.  485,  and  How  v.  Camp,  Walk.  Ch.  (Mich.)  427,  it 


SECT.  I.]  CROCKETT   V.   PHINNEY.  147 

consideration  is  made  the  agency  for  floating  a  scheme  of  fraud  against 
creditors,  and  if  that  may  always  be  saved,  nothing  is  lost  by  the  effort 
and  the  temptation  to  venture  it  is  increased.  We  are  thus  unable  to 
find  in  the  record  any  error  which  will  justify  a  reversal.  Indeed,  since 
the  ground  of  recovery  against  the  defendants  rests  almost  wholly  upon 
the  single  fact  of  a  false  and  fraudulent  consideration,  fabricated  by 
the  joint  act  of  both  grantor  and  grantee,  and  distinctly  admitted  by 
each  to  have  been  without  an  honest  foundation,  the  questions  of  evi- 
dence raised  can  hardlj7  be  said  to  have  affected  the  ultimate  result. 

The  judgment  should  be  affirmed  with  costs. 

All  concur,  except  RUGER,  Ch.  J.,  and  ANDREWS,  J.,  not  voting. 

Judgment  affirmed. 


CROCKE        „.  PHINNEY. 


MINNESOTA  SUPREME  COURT,  FEBRUARY  4,  1885. 
[Reported  in  33  Minnesota,  157.] 

BERRY,  J.  This  is  an  action  in  the  nature  of  trespass  or  trover,  for 
taking  and  converting  certain  lumber,  of  which  plaintiffs  claim  to  be 
owners  by  virtue  of  a  sale  and  delivery  thereof  to  them  by  its  former 
owner,  the  firm  of  J.  D.  Campbell  &  Co.  The  defendants  except 
Phinney,  who,  as  sheriff,  acted  for  his  co-defendants,  are  creditors  of 
J.  D.  Campbell  &  Co.,  and,  as  such,  attached  the  lumber,  upon  the 
basis  that,  as  to  them,  the  sale  to  plaintiffs  was  fraudulent.  There 
was  competent  evidence  in  the  case  sufficient  to  warrant  the  jury  in 
finding  that  there  was  no  fraud  on  the  part  of  the  plaintiffs  in  making 
the  purchase,  and  that  they  paid  $1,000  of  the  purchase  price  of  the 
lumber  in  good  faith,  and  before  notice  of  any  fraudulent  intent  in 
making  the  sale  on  the  part  of  the  firm  of  Campbell  &  Co.  towards  its 
creditors.  For  the  remainder  of  the  purchase  price  plaintiffs  executed  $%  !/ 
their  negotiable  promissory  note  to  Campbell  &  Co.,  paj'able  in  six  *  ot>  $£ 
months,  and  the  evidence  tends  to  show  that  this  note  was,  by  agree-  •tt^/^u 
ment  between  plaintiffs  and  Campbell  &  Co.,  left  in  the  hands  of  a 
third  person  (Ball),  by  whom  the  money  amount  of  an}'  shortage  in 
the  estimated  quantity  of  the  lumber,  when  ascertained,  was  to  be  in- 
dorsed on  the  note,  which  was  then  to  be  handed  over  to  Campbell  & 

was  held  that  a  grantee,  though  actually  fraudulent,  was  entitled  to  be  credited  with 
money  paid  for  taxes  and  necessary  repairs.  See  also  Jackson  c.  Ludeling,  99  U.  S. 
513.  Contra  is  Strike's  Case,  1  Bland  Ch.  (Md.)  57,  s.  c.  on  appeal  sub  nom.  Strike 
v.  McDonald,  2  Har.  &  G.  191. 

When  property  subject  to  an  encumbrance  is  transferred  to  a  fraudulent  prantee, 
who  pays  it  the  creditors  can  recover  only  the  value  of  the  encumbered  property.  Ladd 
v.  Wiggin,  35  N.  H.  421  ;  Hamilton  Nat.  Bank  v.  Halsted,  134  N.  Y.  520.  See  also 
Re  Chase,  133  Fed.  79;  Leqve  v.  Stoppel,  64  Minn.  74. 


148  CROCKETT   V.   PHINNEY.  [CHAP.  IV. 

Co.  The  evidence  >  further  tended  to  show  that  at  the  time  of  the 
attachments,  and  of  notice  to  plaintiffs  of  the  alleged  fraudulent  intent 
of  Campbell  &  Co.  in  making  the  sale,  the  note  was  still  in  Ball's 
hands,  under  the  agreement  mentioned,  and  that  subsequently  the  in- 
dorsement of  shortage  was  made  thereon,  and  the  note  delivered  to 
Campbell  &  Co.,  by  whom  it  was  put  into  Ball's  hands  as  security  for 
some  indebtedness  of  Campbell  &  Co.  to  him,  and  to  a  firm  of  which 
he  was  a  member,  and  in  this  way  Ball  held  the  note  at  the  time  of  the 
trial  of  this  action. 

In  this  state  of  facts  the  defendants  contend  that  the'  plaintiffs 
recovery  should  at  least  be  limited  to  the  amount  which  they  had  paid 
upon  their  purchase  of  the  lumber,  at  the  time  when  they  had  notice 
of  the  fraudulent  intent  of  Campbell  &  Co.  in  making  the  sale. 

In  certain  circumstances,  equity  affords  relief  analogous  to  that 
which  defendants  thus  seek  in  this  instance  ;  as,  for  example,  in  con- 
tests as  to  title  to  real  estate  between  a  subsequent  purchaser  and  per- 
sons having  prior  equitable  rights,  such  as  a  prior  purchaser  whose 
deed  or  contract  is  unrecorded,  of  whose  right  the  subsequent  pur- 
chaser had  no  notice  at  the  time  of  his  purchase  ;  also,  in  like  contests 
between  an  honest  purchaser  and  creditors  of  his  vendor,  who  claim 
that  the  sale  was  fraudulent  as  to  them,  and  who  seek  to  avail  them- 
selves of  their  equitable  lien,  as  creditors,  upon  their  debtor's  property. 
In  instances  like  these,  where  the  whole  purchase-money  has  not  been 
paid,  in  fact,  or  by  the  giving  by  the  purchaser  of  an  irrevocable  obli- 
gation for  its  payment,  equity  will  sometimes,  as  respects  the  prior 
purchaser  or  creditor,  as  the  case  may  be,  treat  the  sale  as  fraudulent 
and  void  by  setting  it  aside,  or  otherwise,  but  at  the  same  time  will 
place  the  honest  purchaser  in  statit  quo,  by  restoring  to  him  whatever 
he  has  paid  upon  his  purchase,  and  otherwise  reinstating  him  in  his 
position  before  his  purchase.  Clements  v.  Moore,  6  Wall.  299  ;  Lewis 
v.  Phillips,  17  Ind.  108  ;  Hardin  y.  Harrington,  11  Bush,  367  ;  Tomp- 
kins  v.  Sprout,  55  Cal.  31 ;  2  Pom.  Eq.  Jur.  §§  745-751';  Wait,  Fraud. 
Conv.  §§  192,  193. 

But,  so  far  as  we  discover,  this  relief  is  afforded  in  equitable  pro- 
ceedings only,  and  only  in  regard  to  real  estate.1  But  we  think  the 

1  The  doctrine  is  applicable  to  personal  property.  In  some  form  of  procedure  a 
party  entitled  under  a  constructive  trust  to  personal  property  may  enforce  the  trust 
against  a  purchaser  who  has  paid  part  of  the  price  only  before  notice,  either  treating 
the  purchaser  as  if  a  mortgagee  for  the  price  paid  before  notice,  or,  less  commonly, 
holding  him  liable  for  the  balance  of  the  price.  Simmons  v.  Shelton,  112  Ala.  284, 
291 ;  Bush  v.  Collins,  35  Kan.  535 ;  De  Ford  v.  Orvis,  42  Kan.  302 ;  Work  v.  Cover- 
dale,  47  Kan.  307 ;  Riddell  v.  Munro,  49  Minn.  532 ;  Dougherty  v.  Cooper,  77  Mo. 
528;  Sargent  v.  Eureka  Co.,  46  Hun,  19.  The  question  is  left  open  in  Florence  Co. 
».  Ziegler,  58  Ala.  221,  225.  See  also  Schloss  v.  Feltus,  96  Mich.  619. 

In  Riddell  v.  Munro,  49  Minn.  532,  the  plaintiff  had  purchased  a  piano,  the  price 
being  payable  in  instalments,  from  Louis  Northcott,  who  had  obtained  title  by  a  fraud- 
ulent sale  from  an  embarrassed  debtor,  whose  creditors  had  now  levied  on  the  prop- 
erty. The  plaintiff  brought  action  against  the  sheriff.  The  court  say :  "  Plaintiff 
had  paid  but  two  instalments  of  five  dollars  each  on  the  piano,  and  the  question  was 


SECT.  I.]  CROCKETT  V.   PHINNEY.  149 

trial  court  properly  held  that  in  this  action,  whatever  might  be  done  in 
an  equitable  proceeding,  the  defendants  could  not  avai}  themselves  of 
the  equitable  doctrine  spoken  of;  for  this  is  an  action  purely  in  the 
nature  of  the  common-law  action  of  trespass  or  trover.  The  issues  are 
such,  and  such  onty,  as  pertain  to  actions  of  those  kinds.  The  vital 
issue  —  the  precise  matter  in  dispute  upon  the  allegations  of  the  plead- 
ings —  is  whether  or  not  the  sale  by  Campbell  &  Co.  to  the  plaintiffs 
was  wholly  fraudulent  and  void  as  respected  the  defendants,  as  cred- 
itors of  Campbell  &  Co.,  from  the  fact  that  it  was  made  with  the  intent 
and  purpose  of  defrauding  such  creditors,  to  the  plaintiffs'  knowledge. 
What,  if  any,  equitable  relief  the  defendants  might  be  entitled  to  in 
case  the  sale  was  not  thus  fraudulent  and  void  was  altogether  outside 
of  the  issues. 

If  the  plaintiffs  had  purchased  the  property  in  good  faith,  and  with- 
out any  knowledge  or  participation  in  any  fraudulent  intent  of  the 
vendor,  and  had  paid  for  it  in  whole  or  in  part,  they  had  become  legal 
owners  of  it  even  as  against  the  vendor's  creditors  ;  and  in  this  action 
their  ownership  would  entitle  them  to  recover  the  value  of  the  lumber 
seized  by  defendants.  It  may  be  possible  that  by  setting  up  their 
equities  in  this  action,  or  some  other,  and  bringing  in  Bail  and  Campbell 
&  Co.,  so  as  to  protect  plaintiffs  against  their  outstanding  negotiable 
note  (Nicols  v.  Crittenden,  55  Ga.  497),  and  restore  them  to  their 
status  in  quo,  the  defendants  might  obtain  some  such  relief  as  they 
seek,  although  the  lumber  was  personal  propert\".  But  if  any  such 
equities  could  be  asserted  in  such  an  action  as  this,  they  must  be  set 
up  in  the  answer.  Gen.  St.  1878,  c.  66,  §  96.  But,  as  this  action  stood 
at  the  trial,  it  was  a  simple  action  at  law,  and  its  issues  purely  legal, 
as  before  stated.  Wait,  Fraud.  Conv.  §  194. 

These  are  the  only  matters  which  we  deem  it  necessary  to  discuss  in 
this  opinion,  and  the  result  is  that  the  order  denying  a  new  trial  i.s 
affirmed. 

also  raised  whether  his  recovery  should  not  be  limited,  in  any  event,  to  the  amount 
advanced  by  him  before  notice  of  the  fraud.  As  against  judgment  creditors,  his 
recovery  would  be  so  limited,  provided  he  was  not  answerable  over  to  Louis  Northcott 
for  the  balance  on  the  contract  with  him ;  but  this  could  not  be  determined,  as  against 
the  latter,  unless  he  was  a  party  or  was  bound  to  take  the  burden  of  the  litigation  for 
breach  of  warranty  of  title.  As  this  does  not  appear,  we  cannot  hold  the  ruling  of 
the  court  [allowing  the  value  of  the  piano]  wrong  on  the  question  of  the  damages." 

On  the  general  question  how  far  one  who  has  innocently  acquired  title  and  paid  part 
of  the  price  is  protected,  see  Ames  Cas.  Trusts,  288  note,  Ames  Cas.  Bills  and  Notes, 
L  670,  676  and  notes. 


150  IN   RE   JOHNSON.      GOLDEN   V.    GILLAM.  [CHAP.  IV, 


IN  BE  JOHNSON.     GOLDEN  v.  GILLAM. 
IN  THE  CHANCERY  DIVISION,  DEOEMBEK  13-15,  1881. 

[Reported  in  20   Chancery  Division,  389.] 

THIS  was  an  action  to  set  aside  a  deed  of  gift  as  fraudulent  and 
void  under  the  statute  13  P^liz.  c.  5. 

The  deed  of  gift  was  dated  the  12th  of  June,  1878,  and  witnessed 
that  in  consideration  of  the  natural  love  and  affection  of  Judith 
Johnson,  widow,  towards  her  daughters  Alice  and  Amy,  and  of  the 
covenants  thereinafter  contained,  the  said  Judith  Johnson  granted 
a  farmhouse  and  premises  in  Trunch,  in  the  county  of  Norfolk,  to 
Stephen  Gillam  and  his  heirs,  as  to  one  moiety  to  the  use  of  her  daughter 
Alice,  and  as  to  the  other  moiety  to  the  use  of  her  daughter  Amy,  and 
assigned  the  crops  of  the  farm  as  to  one  moiety  in  trust  for  Alice,  and  as 
to  the  other  moiety  in  trust  for  Amy.  And  Alice  and  Amy  covenanted 
that  they,  or  one  of  them,  would  "  pay  all  the  just  debts  incurred  by  the 
said  Judith  Johnson  up  to  the  date  of  the  said  indenture  in  connection 
with  the  working  and  management  of  the  said  farm,"  and  would  main- 
tain the  said  Judith  Johnson  during  her  life,  providing  her  with  a  home, 
food,  clothes,  and  medical  or  other  attendance  in  such  style  or  manner 
as  she  had  been  theretofore  accustomed  to. 

This  deed  of  gift,  which  was  executed  by  Judith  Johnson  and  Alice 
Johnson,  was  a  conveyance  of  all  the  property  of  Judith  Johnson. 

The  plaintiff  was  a  creditor  of  Mrs.  Johnson  at  the  date  of  the  deed 
for  £120.  This  debt  was  not  incurred  by  Mrs.  Johnson,  but  by  Wil- 
liam Johnson,  her  predecessor  in  the  farm,  and  she  had  adopted  it  by 
giving  a  promissory  note  for  the  amount. 

-  Evidence  was  offered  that  there  were  other  creditors  of  Mrs.  Johnson 
besides  the  plaintiff,  who  were  not  provided  for  by  the  deed,  but  the 
court  held  that  none  of  these  debts  were  proved  to  have  been  incurred 
for  purposes  unconnected  with  the  farm. 

The  state  of  the  family  of  Judith  Johnson  when  the  deed  was  exe- 
cuted was  as  follows  :  Judith  Johnson  was  the  widow  of  William  John- 
son, who  had  previously  been  the  husband  of  her  sister,  and  had  had  by 
her  a  famity  of  whom  one  son,  James,  was  living.  After  his  first  wife's 
death  William  Johnson  had  gone  through  the  ceremony  of  marriage 
with  Judith  Johnson,  his  deceased  wife's  sister,  and  had  a  family  by 
her,  of  whom  George,  Arthur,  Alice,  and  Anry  were  living.  William 
Johnson  had  provided  for  his  children,  other  than  Alice  and  Amy,  out 
of  other  property,  and  shortly  before  he  died  he  granted  the  Trunch 
farm  —  the  subject  of  this  litigation  — by  deed  of  gift  to  Judith  John- 
son, in  consideration  of  her  covenant  "to  pay  all  debts  incurred  by 
William  Johnson  in  connection  with  the  working  and  management  of 
the  farm,  and  all  liabilities  that  he  might  incur  for  means  of  living, 
medical  attendance,  and  expenses  of  a  like  nature." 


SECT.  I.]  IN   EE   JOHNSON.      GOLDEN  V.  GILLAM.  151 

George  and  James  Johnson  were  living  away  from  the  farm,  Arthur 
lived  with  his  mother,  Mrs.  Johnson,  till  1877,  when  he  /left,  and,  Mrs. 
Johnson  being  then  bedridden,  the  farm  was  carried  on  by  Alice,  the 
elder  daughter,  and  Amy  (who  was  an  infant  at  the  date  of  the  deed), 
with  the  assistance  of  the  defendant  Gillam.  Gillam  made  them  ad- 
vances of  money  from  time  to  time  for  the  purchase  of  cattle  and  stock, 
and  repaid  himself  out  of  the  produce.  The  plaintiff  claimed  to  set 
aside  the  deed  to  the  defendant  as  fraudulent  against  himself  and  the 
other  creditors  of  Mrs.  Johnson. 

J".  Pearson,  Q.  C.,  and  Maidlow,  for  the  plaintiff. 

W.  W.  Karslake,  Q.  C.,  and  Hadley,  for  the  defendant 

FRY,  J.,  after  stating  the  effect  of  the  deed,  said  : 

It  is  clear  that  the  consideration  for  the  deed  of  the  12th  of  June, 
1878,  was  in  part  meritorious  and  in  part  valuable.  The  question  be- 
fore me  is  whether  the  deed  is  void  against  creditors  under  the  statute 
of  the  13  Eliz.  c.  5. 

For  the  purpose  of  deciding  this,  it  will  be  convenient  and  proper  to 
refer  to  the  material  words  of  the  statute,  and  I  find  these  sufficiently 
stated  in  a  passage  of  the  judgment  of  Sir  Thomas  Plumer,  when  Vice- 
Chancellor,  in  Copis  v.  Middleton,  2  Madd.  410.  He  says  (2  Madd. 
427) :  "  The  preamble  of  the  act  is,  for  the  avoiding  and  abolishing  of 
feigned,  covinous,  and  fraudulent  feoffments,  as  well  of  lands  and  tene- 
ments as  of  goods  and  chattels,  devised  and  contrived  of  malice,  fraud, 
covin,  collusion,  or  guile,  to  the  end,  purpose,  and  intent  to  delay, 
hinder,  or  defraud  creditors  and  others  of  their  just  and  lawful  actions, 
suits,  debts,  etc.,  not  only  to  the  let  or  hindrance  of  the  due  course  and 
execution  of  law  and  justice,  but  also  to  the  overthrow  of  all  true  and 
plain  dealing  .  .  .  between  man  and  man,  without  which  no  common- 
wealth or  civil  society  can  be  maintained  or  continued.  A  conveyance, 
therefore  (the  Vice-Chancellor  continues),  to  be  affected  by  this  act, 
must  be  shown  to  be  feigned,  covinous,  and  fraudulent,  and  made  with 
an  intent  to  delay,  hinder,  cr  defraud  creditors :  but  if  this  case  were 
held  to  be  within  the  statute,  it  would  be  the  overthrow  of  all  true  and 
plain  dealing  and  bargaining  between  man  and  man  ;  for,  as  a  purchaser 
cannot  know  the  circumstances  of  the  vendor,  it  would  prevent  all  deal- 
ing and  bargaining  between  man  and  man,  and  counteract  the  object  of 
the  statute.  The  statute,  in  order  to  prevent  this  inconvenience,  has 
by  the  6th  section  provided  that  the  act  shall  not  extend  to  an}-  con- 
veyance upon  good  consideration  and  bonafide  to  any  person  not  hav- 
ing at  the  time  of  such  conveyance  any  manner  of  notice  or  knowledge 
of  such  covin,  fraud,  or  collusion.  A  conveyance,  therefore,  cannot  be 
invalidated  by  this  act  if  there  has  been  a  bona  fide  purchaser." 

In  Thompson  v.  Webster,  4  Drew.  628,  Vice-Chancellor  Kindersley 
said  (p.  632)  with  regard  to  the  general  principle  of  the  act :  u  The 
principle  now  established  is  this :  The  language  of  the  act  being  that 
any  conveyance  of  property  is  void  against  creditors  if  it  is  made  with 
intent  to  defeat,  hinder,  or  delay  creditors,  the  court  is  to  decide  in 


V 


152  IN   RE   JOHNSON.      GOLDEN   V.   GILLAM.  [CHAP.  IV. 

each  particular  case  whether  on  all  the  circumstances  it  can  come  to  the 
conclusion  that  the  intention  of  the  settlor  in  making  the  settlement  was 
to  defeat,  hinder,  or  delay  his  creditors." 

It  is  obvious  that  the  intent  of  the  statute  is  not  to  provide  equal  dis- 
tribution of  the  estates  of  debtors  among  their  creditors,  —  there  are 
other  statutes  which  have  that  object ;  nor  is  it  the  intent  of  this  statute 
to  prevent  any  honest  dealing  between  one  man  and  another,  although 
the  result  of  such  dealing  ma)'  be  to  delay  creditors.  And  cases  have 
been  cited  accordingly  where  deeds  of  this  nature  have  been  held  good, 
though  the  result  of  them  has  been  that  creditors  have  been  not  only  de- 
layed but  excluded. 

The  effect  on  a  deed  of  this  sort  of  its  being  for  good  consideration 
is  very  great.  It  does  not  necessarily  show  that  the  deed  may  not  be 
void  under  the  statute,  because  in  many  cases  good  consideration  has 
been  proved,  and  yet  the  object  of  the  deed  has  been  to  defeat  and  de- 
lay creditors  ;  such  has  been,  therefore,  for  an  unconscientious  purpose, 
and  the  fact  that  there  has  been  good  consideration  will  not  uphold  the 
deed.  But  nevertheless  it  is  a  material  ingredient  in  considering  the 
case,  and  for  very  obvious  reasons :  the  fact  that  there  is  valuable  con- 
sideration shows  at  once  that  there  may  be  purposes  in  the  transaction 
r  .  -p  other  than  the  defeating  or  delaying  of  creditors,  and  renders  the  case, 

I/"'.  ^/X  therefore,  of  those  who  contest  the  deed  more  difficult.  In  the  case  of 
jfP  Harman  v.  Richards,  the  Lord  Justice  Turner,  then  Vice-Chancellor, 

makes  this  observation,  10  Hare,  89:  "It  remains  to  be  considered 
whether  the  settlement  which  was  thus  made  for  valuable  consideration 
was  also  made  bona  fide,  for  a  deed,  though  made  for  valuable  con- 
sideration, may  be  affected  by  mala  fides.  But  those  who  undertake 
to  impeach  for  mala  fides  a  deed  which  has  been  executed  for  valuable 
consideration,  have,  I  think,  a  task  of  great  difficulty  to  discharge." 

Lord  Hatherley,  when  Vice-Chancellor,  adopted  the  same  view  in  the 
case  of  Holmes  v.  Penney,  3  K.  &  J.  90,  which  has  been  discussed  be- 
fore me,  and  the  same  point  was  stated  with  even  more  force  by  Lord 
Justice  Giffard  in  Freeman  v.  Pope,  Law  Rep.  5  Ch.  538.  He  said  in 
that  case  (p.  544)  :  "  I  do  not  think  that  the  Vice-Chancellor  need  have 
felt  any  difficulty  about  the  case  of  Spirett  v.  Willows,  3  D.  J.  &  S.  293, 
but  he  seems  to  have  considered  that  in  order  to  defeat  a  voluntary 
settlement  there  must  be  proof  of  an  actual  and  express  intent  to  defeat 
creditors.  That,  however,  is  not  so.  There  is  one  class  of  cases,  no 
doubt,  in  which  an  actual  and  express  intent  is  necessary  to  be  proved, 
that  is  in  such  cases  as  Holmes  v.  Penney,  3  K.  &  J.  90,  and  Lloyd  v. 
Attwood,  3  De  G.  &  J.  614,  where  the  instruments  sought  to  be  set 
aside  were  founded  on  valuable  consideration  ;  but  where  a  settlement 
is  voluntary,  then  the  intent  may  be  inferred  in  a  variety  of  ways."  I 
therefore  proceed  to  inquire,  looking  to  all  the  circumstances  of  the  case 
and  at  the  nature  of  the  instrument  itself,  whether  I  can  or  ought  to 
infer  an  intent  to  defraud  creditors  in  the  parties  to  the  deed.  I  say 
in  the  parties  to  the  deed,  because  it  appears  to  me  to  be  plain  that 


SECT.  I.]  IN   RE   JOHNSON.      GOLDEN   V.   GILLAM.  153 

whatever  fraudulent  intent  there  may  have  been  in  the  mind  of  Judith 
Johnson,  it  would  not  avoid  the  deed  unless  it  was  shown  to  have  been 
concurred  in  by  Alice,  who  became  the  purchaser  under  the  deed.  It  has 
not  been  contended,  and  it  could  not  be  contended,  that  the  mere  fraudu- 
lentintent  of  the  vendor  could  avoid  the  deed,  if  the  purchaser  were 
free  from  that  fraud. 

[His  Lordship  then  adverted  to  the  provision  which  had  been  made 
before  the  date  of  the  deed  for  the  other  children  of  Judith  Johnson, 
and  continued :  ] 

Having  regard  to  the  condition  of  the  family,  the  deed  was  a  highly 
proper  one  ;  the  sons  had  left  the  home,  and  were  provided  for  by  the 
dispositions  which  their  father  had  made  of  the  residue  of  his  property  ; 
Mrs.  Johnson  was  possessed  of  this  farm  and  of  nothing  else  ;  the  two 
single  daughters  living  with  her  must  have  been  objects  of  her  anxiety 
and  care ;  she  was  bedridden  and  not  likely  to  recover ;  the  farm  was 
practically  carried  on  by  Alice.  Thereupon  this  deed  was  executed 
with  the  obvious  intention  of  making  over  to  the  daughters  tljat  farm 
which  their  mother  hoped  they  would  reside  on  after  her  decease,  to 
avoid  the  heavy  succession  duty  which  would  ensue  if  she  allowed  the 
farm  to  pass  to  them  under  her  will,  they  not  being  legally  her  children, 
but  strangers  to  her.  The  deed  is,  I  observe,  framed  on  the  model  of 
the  previous  deed,  which  had  been  executed  by  her  husband  on  his 
death-bed. 

Now,  it  is  important  to  inquire  what  was  the  indebtedness  of  Mrs. 
Johnson  when  she  executed  the  deed.  She  appears  to  have  had  some 
current  debts,  mostly,  if  not  entirely,  in  respect  of  the  farming  business. 
She  owed  a  Mr.  Simpson,  a  witness  in  the  case,  an  account  for  saddlery, 
the  whole  of  which  (with  possibly  one  unimportant  exception)  was  due 
in  respect  of  the  carrying  on  of  the  farm.  She  owed  her  sister  Sarah 
Oolden  £80,  and  I  cannot  infer  that  that  money  was  borrowed  for  any 
other  purpose  than  carrying  on  the  farm,  because  it  is  for  the  plaintiff 
to  show  that  that  was  so,  and  he  has  had  Sarah  Golden  in  the  box  and 
has  not  asked  her  anything  about  it.  The  sum  of  £120  was  owing  from 
Judith  Johnson  to  her  brother  William  Golden,  the  plaintiff.  That  sum 
was  borrowed  by  William  Johnson,  and  when  she  became  the  owner  of 
the  farm  she  adopted  the  debt  by  executing  a  promissory  note,  and  there 
was  a  mortgage  debt  upon  the  farm,  which  had  also  been  a  debt  of 
William  Johnson.  It  appears  by  the  evidence  that  Mrs.  Johnson  was  a 
person  of  good  repute  among  her  friends,  as  a  respectable  and  honest 
woman,  who  paid  her  way,  and  was  in  no  difficulty.  Beyond  what  I 
have  mentioned  she  does  not  appear  to  have  owed  anything  except 
ordinary  current  debts,  and  was  not  pressed  by  a  single  creditor.  That 
was  the  state  of  things  when  this  instrument  was  executed.  One  other 
fact  I  must  mention  with  regard  to  the  state  of  the  family,  which  is  this  : 
that  litigation  had  been  going  on  which  led  to  some  alienation  of  feel- 
ing between  Mrs.  Johnson  and  other  members  of  the  family,  and  which 
made  it  more  natural  that  she  should  desire  the  whole  of  this  farm  to  go 


154  IN   RE   JOHNSON.      GOLDEN   V.    GILLAM.  [CHAP.  IV. 

for  the  benefit  of  her  two  daughters.  Mr.  Gillam  appears  to  have  been 
the  most  natural  person  to  select  as  trustee  of  the  deed,  if  the  purpose 
of  the  parties  was  honest  and  fair.  From  what  I  have  seen  of  him.  I  do 
not  believe  he  is  a  person  who  would  have  been  a  party  to  a  deed  which 
was  intended  to  be  kept  secret,  or  to  be  entered  into  for  the  purpose  of 
fraud.  I  think  his  selection  as  trustee  is  an  indication  of  the  good  faith 
with  which  the  transaction  was  conceived. 

With  regard  to  what  took  place  under  the  deed,  it  appears  to  me  that 
there  was  neither  concealment  nor  publication.  Mrs.  Johnson's  name 
continued  to  be  used  as  before  with  regard  to  the  farm.  The  daughter 
continued  to  make  the  payments,  and  there  was  no  material  change  in 
the  way  that  things  were  carried  on. 

The  circumstances,  looked  at  independently  of  the  result  of  the  deed, 
therefore  led  me  to  the  conclusion  that  the  intention  of  the  parties  was 
to  make  a  perfectly  honest  family  arrangement,  under  which  the  daugh- 
ters were  to  undertake  the  burden  of  paying  their  mother's  debts,  and  in 
consideration  of  that,  to  take  immediately  that  farm  which  in  all  proba- 
bility they  would  otherwise  have  received  by  will  upon  their  mother's 
death. 

Then  it  is  said,  and  said  truly,  that  a  person  must  generall}-  be  taken 
to  intend  the  result  of  his  acts.  That  is  often,  but  by  no  means  always, 
true,  because,  although  no  doubt  the  immediate  and  main  result  of  our 
acts  must  be  the  object  of  our  intention,  there  are  many  collateral  re- 
sults of  acts  which  are  not  only  not  objects  of  our  intention,  but  against 
our  wish.  There  are  man}'  unintentional  results  of  intentional  acts. 
The  operation  of  the  deed,  it  is  said  in  this  case,  was  to  defeat  and  de- 
lay creditors,  therefore  it  is  said  that  that  must  have  been  intended. 
That  argument  has  been  presented  in  two  wa}-s.  In  the  first  place  it 
has  been  observed  that  the  deed  contained  a  provision  onl}-  for  the  pay- 
ment of  creditors  whose  debts  had  been  contracted  in  connection  with 
canning  on  the  farm  :  It  is  said  that  there  must  have  been  debts  of  other 
descriptions,  and  that  there  was  in  fact  one  debt  at  any  rate  of  another 
description.  But  it  does  not  appear  to  me  to  be  shown  that  that  debt 
was  present  to  the  mind  of  the  settlor,  Mrs.  Johnson,  or  to  the  mind  of 
her  daughter  ;  and  nothing  is  more  probable,  if  I  were  to  speculate  upon 
the  intention,  than  that  Mrs.  Johnson,  having  adopted  the  debt  of  Wil- 
liam Johnson,  after  a  deed  conceived  in  similar  terms,  would  have  an- 
ticipated that  her  daughters  must  in  like  manner  adopt  the  debt  of  their 
uncle  under  this  deed.  It  appears  plain  from  the  case  of  Holmes  v. 
Penney,  3  K.  &  J.  90,  that  the  mere  fact  of  a  h  on  a  fide  creditor  being 
defeated  is  not  of  itself  sufficient  to  set  aside  a  deed  founded  on  valua- 
ble consideration.  In  this  case,  if  I  uphold  the  deed,  it  seems  probable 
that  the  plaintiff  will  have  no  remedy  in  respect  of  his  debt.  In  that 
case,  by  upholding  the  deed,  the  plaintiff  was  excluded  from  all  remedy 
in  respect  of  his  debt,  and  that  debt  must  have  been  plainly  present 
to  the  mind  of  the  settlor,  but  the  Vice-Chancellor  thought  that  the 
only  object  of  the  brother,  who  was  the  purchaser  of  the  estate,  was  to 


BBCT.  I.]  EGERY  V.   JOHNSON.  155 

make  an  honest  family  arrangement  with  regard  to  it.  So  it  appears  to 
me,  in  the  present  case,  that  the  object  of  the  mother  and  daughters 
was  to  make  an  honest  famih'  settlement  of  the  property. 

Then  again  it  is  said  that  with  respect  to  man}'  creditors  who  are  in- 
cluded in  the  covenant,  they  are  defeated  and  delayed,  because  before 
the  execution  of  the  deed  they  had  a  right  against  the  property,  and 
after  the  execution  of  the  deed  they  would  only  have  a  right  to  the  en- 
forcement of  the  covenant.  But  that  is  the  result  of  almost  any  deal- 
ing. If  I  am  indebted  and  sell  my  estate,  my  creditors  lose  their  right 
of  proceeding  against  the  estate,  and  can  only  proceed  against  the  pur- 
chase-money. 80  in  a  variety  of  cases  visible  chattels  or  real  estate  are 
converted  into  choses  in  action,  and  if  creditors  could  complain  of  that 
it  would,  as  Sir  Thomas  Plumer  pointed  out,  "  restrain  honest  dealings 
and  transactions  between  man  and  man." 

There  is  only  one  other  point  on  which  I  wish  to  observe,  although  it 
has  not  been  put  to  me.  It  appears  plain,  that  though  valuable  and 
good  consideration  was  given  by  the  daughters,  that  consideration  can- 
not have  been  the  full  value  of  the  estate.  But  it  also  appears  to  me 
to  be  plain  that  when  a  bonafide  and  honest  instrument  is  executed  for 
which  valuable  consideration  is  given,  and  the  instrument  is  one  be- 
tween relatives,  the  court  cannot  say  that  the  difference  between  the 
real  value  of  the  estate  and  the  consideration  given  is  a  badge  of  fraud, 
and  if  it  is  not  a  badge  of  fraud,  or  evidence  of  an  intention  to  defeat 
creditors,  it  has  no  relation  to  the  case. 

I  have  come,  therefore,  to  the  conclusion  upon  the  whole  of  the  case, 
that  the  instrument  impeached  was  executed  in  good  faith  and  for  a 
valuable  consideration,  that  it  was  an  honest  famih'  arrangement,  and 
was  executed  without  any  intention  to  defraud  or  delay  creditors. 
That  being  so,  I  dismiss  the  action  with  costs. 


EGERY  v.  JOHNSON. 
SUPREME  JUDICIAL  COURT  OP  MAINE,  1879. 

[Reported  in  70  Maine,  258.] 

BILL  in  equity  heard  on  bill,  answers  and  proof.  The  material 
allegations  are  in  the  opinion. 

The  defendant  Johnson's  answer  admitted  the  ownership  of  the  prem- 
ises at  the  time  alleged  in  the  bill,  and  alleged :  — 

That  during  1873  or  4,  Nason  Brothers  were  engaged  in  lumbering 
operations  under  a  contract  with  the  plaintiffs  and  on  the  latter's  land, 
ami  prior  thereto  borrowed  $6,100  of  the  defendant  to  carry  on  their 
business  and  gave  their  notes  therefor ;  that  on  October  23,  1874,  to 
enable  Nason  Brothers  to  complete  their  operations  the  defendant  gave 
them  his  negotiable  promissory  note  for  $1,800  on  one  month;  thai 


156  EGERY   V.   JOHNSON.  [CHAP.  IV. 

Nason  Brothers  cut  and  ran  down  to  their  mill  1,800,000  lumber,  nearly 
all  of  which  was  sawed  and  shipped  to  the  plaintiffs  in  Bangor ;  that 
during  the  operation  this  defendant  was  assured  by  Nason  Brothers, 
that  when  plaintiffs  disposed  of  the  lumber  his  notes  should  be  paid ; 
that  he  had  frequent  conversations  with  plaintiffs  in  which  they  informed 
him  that  they  were  receiving  and  disposing  of  the  lumber  and  would 
account  for  the  proceeds ;  that"  the}-  held  the  $1.800  note  and  had  no 
doubt  that  the  proceeds  of  the  lumber  would  be  sufficient  to  pay  said 
note  and  that  the  defendant  would  receive  all  his  pay  from  Nason 
Brothers;  that  confiding  in  the  above  assurance,  during  season  1875 
he  was  induced  to  build  a  house  on  the  premises  mentioned  in  the  bill, 
at  a  cost  of  more  than  $1,000;  that  receiving  nothing  from  Nason 
Brothers,  he  became  indebted  for  materials  and  labor  upon  the  house  ; 
that  being  seventy-two  years  old  and  unable  to  labor,  he  was  obliged 
to  sell  the  house  and  land  to  the  other  defendant  who  paid  sufficient 
money  to  discharge  his  indebtedness  for  labor  and  materials,  amounting 
to  $250  ;  and  in  addition  thereto  agreed  to  support  this  defendant  dur- 
ing life,  which  agreement  he  had  faithfully  fulfilled  to  the  present  date  ; 
and  that  he  had  no  intention  to  defraud  any  of  his  creditors. 

That  all  his  creditors  were  soon  after  paid  by  himself  or  the  other 
defendant,  and  he  believed  that  the  complainants  had  been  fully  paid 
or  had  in  their  hands  sufficient  property  or  money  to  pay  the  note  of 
$1,800. 

The  other  defendant's  answer  was  substantially  the  same  —  alleging 
inter  alia  that  one  of  the  plaintiffs  on  October  29,  1875,  informed  him 
that  the  lumber  was  in  this  plaintiffs  hands,  and  whatever  was  left  after 
paying  their  bills  would  be  held  in  trust  for  the  benefit  of  the  defendant, 
Johnson,  and  that  he  had  no  doubt  that  something  would  be  left  after 
all  his  bills  and  claims  had  been  paid. 

The  plaintiffs  put  in  evidence  a  judgment  for  $549.50  debt,  recovered 
on  the  $1,800  note,  and  a  levy  of  the  execution  on  the  premises  in 
question. 

Johnson  testified  that  he  supposed  the  $1,800  note  was  paid  when  he 
conveyed,  and  that  was  all  the  debt  he  owed  except  bills  on  the  house, 
which  were  all  paid  b}T  Keen. 

Albert  A.  Keen  (defendant)  testified  in  substance : 

That  he  had  no  knowledge  of  Johnson's  indebttnent  to  the  plaintiffs 
when  he  purchased  the  premises  ;  that  he  paid  all  the  bills  on  the  house, 
amounting  to  $260;  that  he  heard  of  the  $1,800  note  three  or  four 
weeks  afterward ;  that  the  plaintiff  Dennett  told  him  that  he  had  no 
doubt  there  would  be  lumber  enough  to  pa}'  them,  and  what  was  over 
he  would  hold  for  Johnson's  account. 

That  Johnson  conveyed  to  him  mortgages  on  three  other  houses  and 
some  box  boards,  that  he  would  like  to  sell  the  propert}'  mortgaged  for 
the  amount  due  on  the  mortgages ;  that  he  had  of  Johnson  a  note 
against  Brown  &  Smith  for  $500  which  had  not  been  paid,  but  war 
in  suit. 


SECT.  I.]  EGERY   V.   JOHNSON.  157 

Wilson  &  Wbodard,  for  the  plaintiff. 

D.  N.  Mortland,  for  the  defendants. 

VIRGIN,  J.  The  complainants  allege  that  on,  and  for  some  time  prior 
to  October  29,  1875,  they  were  creditors  of  the  defendant  Johnson,  who 
then  owned  certain  real  estate  described,  and  which  he  then  conveyed, 
without  adequate  consideration,  to  his  grandson,  the  other  defendant, 
to  defraud  and  hinder  the  complainants  ;  that  they  recovered  a  judg- 
ment against  the  grantor  and  levied  their  execution  upon  the  real  estate 
so  conveyed ;  and  the}*  pray  that  the  defendants  shall  release  all  their 
apparent  title  to  the  land  levied  upon  to  the  complainants. 

Some  objection  is  made  to  the  form  of  the  bill.  What  might  have 
been  the  result  had  the  defendants  demurred,  we  need  not  now  inquire. 

Both  defendants  deny  in  their  respective  answers  any  intention  to 
defraud  or  delay  creditors,  and  expressly  testify  to  the  same.  And  we 
feel  so  uncertain  of  an}'  fraudulent  intent  in  fact,  that  were  such  intent 
absolutely  essential  to  the  maintenance  of  the  bill  we  should  dismiss  it 

But  the  answers  inter  alia  respectively  allege  in  substance  —  That 
Johnson  sold  and  conveyed  to  Keen  the  land  in  controversy  together 
with  the  new  house  built  thereon  at  a  cost  of  one  thousand  dollars,  for 
the  sum  of  two  hundred  and  sixty  dollars  and  an  agreement  "  to  take 
Johnson  to  Keen's  house  and  support  and  maintain  him  during  the 
remainder  of  his  life  ;  which  he  had  faithfully  done  to  the  present  time." 
And  if  this  conveyance  left  the  debtor  insolvent,  it  was  fraud  in  law. 

Creditors  have  an  equitable  interest  in  the  property  of  their  respec- 
tive debtors  —  it  being  the  foundation  of  trusting  them  —  which  the  law 
will,  under  certain  circumstances,  enforce.  But  the  interests  of  a  bona 
fide  purchaser  of  a  debtor's  property  are  superior,  "  for  the  obvious 
reason,"  says  SELDEN,  J.,  "  that  the  latter  has  not,  like  a  mere  general 
creditor,  trusted  to  the  personal  responsibility  of  the  debtor,  but  has 
paid  the  consideration  upon  the  faith  of  the  debtor's  actual  title  to  the 
specific  property  transferred."  Seymour  v.  Wilson,  19  N.  Y.  417. 
Hence  the  rights  of  a  bona  fide  grantee,  who  has  paid  a  full  valuable 
consideration,  are  protected,  though  the  grantor  may  have  been  actuated 
by  a  fraudulent  intention. 

Still  a  grantee  is  not  protected  when  he  has  not  paid  such  a  consider- 
ation, though  he  ma}'  have  acted  in  good  faith.  The  two  must  concur. 
The  amount  of  consideration  is  not  material  when  the  grantor  is  solvent, 
(Usher  v.  Hardtime,  5  Me.  471 ;  Hapgood  v.  Fisher,  34  Me.  407) ; 
but  when  insolvent,  the  kind  and  amount  of  consideration  do  become 
material  even  in  the  absence  of  actual  intent  to  defraud.  Thus  an  agree- 
ment to  support  an  insolvent  grantor  may  be  a  valuable  consideration, 
but  it  is  not  sufficient  to  uphold  a  conveyance  as  against  prior  creditors 
(Rollins  v.  Mooers,  25  Me.  192,  199),  even  if  there  were  no  actual 
intent  to  defraud.  Webster  v.  Withcy,  25  Me.  326.  Persons  taking 
a  conveyance  from  such  a  grantor  for  such  a  consideration  must  take 
care  that  the  existing  debts  of  the  grantor  are  paid  (Hapgood  v.  Fisher, 
34  Me.  407) ;  and  it  is  immaterial  that  the  consideration  comprises 


158  EGERY   V.   JOHNSON.  [CHA.P.  IT. 

a  present  sum  of  money  paid  in  addition  to  the  agreement  for  support, 
provided  the  mone}'  alone  were  palpably  inadequate.  Sidensparker  v. 
Sidensparker,  52  Me.  481. 

That  Keen  received  a  conveyance  and  transfer  of  all  Johnson's  re- 
maining property  is  evident.  He  not  only  received  a  deed  of  the  land 
in  question,  but  a  transfer  of  two  mortgages  and  a  note.  His  counsel 
in  his  brief  speaks  of  the  land  as  ••  the  last  bit  of  property  that  he 
(Johnson)  had  held  in  his  hands,''  etc. ;  and  "  that  he  (Keen)  took  a 
conveyance  of  his  (Johnson's)  property  which  was  left,"  etc. 

Thus  we  see  that  the  defendants  are  guilty  of  a  constructive  or  legal 
fraud,  which  though  not  originating  in  an}'  actual  evil  design  to  perpe- 
trate a  positive  fraud  upon  Johnson's  creditors,  yet  is  deemed  reprehen- 
sible and  is  prohibited  by  the  law  since  it  is  equally  prejudicial  to  the 
creditor's  interests.  1  Story's  Eq.  §  258. 

We  do  not  think  the  defendants'  proposition  in  relation  to  estoppel 
is  tenable.  There  is  no  evidence  that  the  plaintiffs  stood  by  and  saw 
Johnson  convey  to  Keen  without  objection. 

APPLETON,  C.  J.,  BARROWS,  DANFOKTH,  PETERS,  and  SYMONDS,  JJ., 
concurred.  Bill  sustained  ;  decree  as  prayed  for?- 

1  For  many  cases  in  accord,  see  14  Am.  &  Eng.  Cyc.  of  Law  (2d  ed.),  246.  But  see 
Tibbals  v.  Jacobs,  31  Conn.  428. 

In  Kelsey  v.  Kelley,  63  Vt.  41, 50,  the  court  say  :  "  This  is  a  case  in  equity,  in  which 
the  orator  must  do,  as  well  as  receive,  equity.  The  master  has  not  found  that  these 
transactions  between  the  intestate  and  these  defendants  were  tainted  with  fraud  in  fact, 
nor  does  the  bill  charge  fraud  in  fact.  If  now,  after  the  defendants  have  fully  supported 
the-intestate  and  his  wife,  at  an  expense  greater  than  the  money  received,  the  orator 
can  compel  a  return  of  the  money  received  sufficient  to  pay  the  creditors  represented 
by  the  orator,  these  defendants  are  left  with  a  debt  of  an  equal  amount,  also  provable 
against  the  estate  represented  by  the  orator.  Why  should  the  creditors  represented 
by  the  orator  receive  payment  more  than  the  defendants  ?  The  defendants  have  been 
guilty  of  no  wrong  in  supporting  their  father  and  mother,  nor  was  it  any  more  a  wrong 
for  them  to  receive  payment  for  such  support  than  for  the  creditors  represented  by  the 
orator  to  receive  payment  for  their  debts  These  creditors  did  nut  know  of  the  exist- 
ence of  the  property  received  by  the  defendants  for  the  support,  and  did  nothing  on 
the  strength  of  its  existence.  On  the  other  hand  the  defendants  knew  of  it,  and  fur- 
nished the  support  for  it.  If  they  had  furnished  the  support  before  receiving  payment 
therefor,  and  then  received  the  same  property  which  they  did  receive,  no  one  would 
claim  that  the  orator  could  recover  the  property  back,  to  pay  the  creditors  represented 
by  him.  If  the  creditors  represented  by  the  orator  had  intervened  before  the  defend- 
ants had  furnished  the  support,  they  would  have  had  the  better  right  to  the  property, 
and  the  defendants  have  sustained  no  damage  Their  intervention  would  have  released 
the  defendants  from  the  contract  to  furnish  further  support.  The  consideration  for 
this  contract  further  to  support  would  have  been  taken  away.  The  defendants,  until 
they  had  furnished  the  full  support,  were  like  a  purchaser  bonaji'le  in  every  respect, 
except  he  had  not  fully  paid  the  contract  price  of  the  property  purchased,  where  he 
must  be  a  bonafide  purchaser  for  value,  to  be  protected  in  his  purchase  ;  if  otherwise  a 
bonafide  purchaser,  he  is  protected  only  to  the  extent  he  has  paid  value.  But  although 
he  does  not  pay  full  value  at  the  time  of  the  purchase,  if  such  payment  is  made  in  full, 
before  he  is  made  aware  of  the  infirmity  of  his  purchase,  he  is  fully  protected  We 
think  this  principle  applicable  between  the  orator  and  these  defendants,  especially 
the  wife,  on  the  facts  of  this  case.  Conveyances  of  property  to  secure  future  sup- 
port, until  the  support  is  furnished,  have  the  infirmity  of  voluntary  conveyances,  or 


SECT.  I.J  IN   RE   TETLEY.      EX   PARTE   JEFFREY.  159 


IN  RE  TETLEY.    Ex  PARTE  JEFFREY. 
IN  THE  QUEEN'S  BENCH  DIVISION,  JULY  20-23,  1896. 

[Reported  in  66  Law  Journal,  Queen's  Bench,  111.] 

MOTION  by  the  trustee  in  bankruptcy  of  Maxwell  Tetley  for  an  ordei 
declaring  that  a  post-nuptial  settlement,  dated  October  30,  1894,  made 
by  the  bankrupt  was  fraudulent  and  void  as  against  the  trustee,  and 
that  it  might  be  set  aside. 

In  1894  the  bankrupt,  who  was  then  under  age,  and  had  recently 
married,  was  entitled  absolutely  under  his  father's  will  to  a  sum  of 
£12,000  on  attaining  twenty-one,  and  also  to  one-twelfth  share  of  his 
father's  estate  upon  the  death  of  his  mother,  Isabella  Maxwell  Tetley, 
who  was  then  between  sixt}'  and  seventy  years  of  age.  He  was  a 
young  man  of  careless  and  extravagant  habits,  and  had  already  during 
his  minority  incurred  debts  to  a  considerable  amount.  Under  these 
circumstances  he  was  advised,  by  his  solicitor,  to  execute  as  soon  as 
he  attained  his  majority  a  settlement  of  his  property  for  the  benefit  of 
himself,  his  wife,  and  any  children  that  might  be  born  of  the  marriage. 
With  a  view  to  ascertaining  the  best  course  to  be  adopted  for  carrying 
out  the  matter,  a  case  on  his  behalf  was  submitted  to  counsel  for  his 
opinion.  Counsel  advised  that  a  settlement  in  very  stringent  terms 
should  be  executed  by  the  bankrupt  directly  he  came  of  age,  excluding 
only  from  the  property  settled  a  sum  of  £3,000  to  be  applied  in  pay- 
ment of  his  debts ;  that  although  his  life  interest  could  not  be  made 
determinable  on  bankruptcy,  it  could  be  made  to  cease  upon  alienation 
whether  voluntary  or  involuntary  (not  being  bankruptcy),  so  that  he 
would  be  able,  if  bankruptcy  were  impending,  to  create  a  charge  on 
his  life  estate  which  would  at  once  forfeit  it,  and  the  trusts  inserted  for 
the  benefit  of  his  wife  and  children  would  then  take  effect;  that  such  a 
settlement  would,  of  course,  be  liable  to  be  attacked  under  the  act  of 
Elizabeth  and  the  bankruptcy  act.  And  he  suggested  that  a  member 
of  the  family  should  make  some  allowance  "  so  as  to  render  the  settle- 
conveyances  for  which  a  full,  valuable  consideration  is  not  paid  at  the  time  the  con- 
veyance is  made.  It  is  well  settled  that  supineness  of  a  creditor  to  attack  and  have 
such  conveyances  set  aside  may  defeat  his  right.  Kigleberger  v.  Kihler,  1  Hill  (S.  0.), 
Ch.  113  (26  Am.  Dec.  192).  Such  conveyances  may  be  validated  by  ex  post  facto 
acts.  Verplanck  v.  Sterry,  12  Johns.  536  (7  Am.  Dec.  348). 

"  While  these  cases  are  not  analogous  in  their  facts  to  the  facts  in  the  case  at  bar, 
we  think  this  case  is  controlled  by  the  same  equitable  principles.  When  this  suit 
was  brought,  in  principle,  the  defendants  stood  related  to  the  money  received  for 
the  support  of  the  intestate  and  wife,  in  equity,  just  as  they  would  if  they  had  first 
furnished  the  support,  and  then  received  the  money  in  payment  therefor.  The  in- 
testate then  might  well  prefer  them,  in  making  payment  of  his  debts,  to  the  cred- 
itors represented  by  the  orator." 

Smith  v.  Pierce"  65  Vt.  200;  Darling  v.  Ricker,  68  Vt.  471;  Hisle  v.  Rndasill, 
89  Va.  519,  ace.  See  also  Nichols  ;;.  Burch,  128  Ind.  324  ;  Walker  v.  Cady,  106  Micb 
91,  26;  Reynolds,  Admrs.  v.  Gawthrop's  Heirs,  37  W.  Va.  3.  11. 


160  IN   RE   TETLEY.      EX   PAKTE   JEFFREY.  [CHAP.  IV. 

ment  one  for  valuable  consideration  within  the  principle  of  Hance  u. 
Harding,  20  Q.  B.  D.  732."  This  opinion  was  shown  to  the  bankrupt's 
family  and  their  solicitors,  and  it  was  eventually  arranged  that  the 
bankrupt's  mother  should  agree  to  pa}'  him  £50  a  }'ear  until  her  death, 
and  that  the  bankrupt's  brother,  C.  F.  Tetley,  should  advance  him  £25 
a  year,  to  be  repaid  with  compound  interest  at  the  rate  of  four  per  cent 
on  the  death  of  the  mother.  The  settlement  was  accordingly  so  framed, 
and  was  duly  executed  by  the  bankrupt  immediately  on  his  attaining 
twenty-one,  on  October  30,  1894.  At  the  date  of  the  execution  of  the 
settlement  the  bankrupt  was  solvent.  In  pursuance  of.  the  provisions 
in  the  deed,  Mrs.  Tetle}-  and  C.  F.  Tetle}*  had  duty  paid  the  annuities 
of  £50  and  £25  covenanted  to  be  paid  by  them  to  the  trustees  of  the 
settlement. 

In  May,  1895,  the  bankrupt  charged  his  life  interest  under  the  settle- 
ment in  favor  of  a  creditor,  and  thereafter  the  trustee  had  applied  the 
income  thereof  for  the  benefit  of  the  bankrupt's  wife. 

On  September  21, 1895,  a  receiving  order  was  made  against  the  bank- 
rupt, and  on  November  8,  1895,  he  was  adjudicated  a  bankrupt. 

The  only  assets  of  the  bankrupt  were  the  property  comprised  in  the 
settlement. 

VAUGHAN  WILLIAMS,  J.,  referred  to  the  notice  of  motion  and  con- 
tinued :  The  settlement  was  impeached  on  two  grounds,  —  first,  as 
being  void  under  section  47  of  the  bankruptcy  act,  1883, 1  as  not  being 
a  settlement  for  valuable  consideration,  made  in  good  faith ;  and,  sec- 
ondly, as  being  fraudulent  under  the  statute  of  Elizabeth,  and  made  to 
defeat  and  delay  creditors. 

The  real  question  I  have  to  decide  is,  in  both  aspects,  whether  the 
settlement  was  made  in  good  faith,  or  made  to  defeat  and  delay  cred- 
itors. There  is  no  doubt  the  settlement  was  made  for  valuable  consid- 

1  47.  (1)  Any  settlement  of  property  not  being  a  settlement  made  before  and  in 
consideration  of  marriage,  or  made  in  favor  of  a  purchaser  or  incumbrances  in  good 
faith,  and  for  valuable  consideration,  or  a  settlement  made  on  or  for  the  wife  or  chil- 
dren of  the  settlor  of  property  which  has  accrued  to  the  settlor  after  marriage  by 
right  of  his  wife,  shall,  if  the  settlor  becomes  bankrupt  within  two  years  after  the  date 
of  the  settlement,  be  void  against  the  trustee  in  the  bankruptcy,  and  shall,  if  the  set- 
tlor becomes  bankrupt  at  any  subsequent  time  within  ten  years  of  the  date  of  the 
settlement,  be  void  against  the  trustee  in  the  bankruptcy,  unless  the  parties  claiming 
under  the  settlement  can  prove  that  the  settlor  was  at  the  time  of  making  the  settle- 
ment able  to  pay  all  his  debts  without  the  aid  of  the  property  comprised  in  the  settle- 
ment, and  that  the  interest  of  the  settlor  in  such  property  had  passed  to  the  trustee  of 
snch  settlement  on  the  execution  thereof. 

(2)  Any  covenant  or  contract  made  in  consideration  of  marriage,  for  the  future 
settlement  on  or  for  the  settlor's  wife  or  children  of  any  money  or  property  wherein 
he  had  not  at  the  date  of  his  marriage  any  estate  or  interest,  whether  vested  or  con- 
tingent in  possession  or  remainder,  and  not  being  money  or  property  of  or  in  right  of 
his  wife,  shall,  on  his  becoming  bankrupt  before  the  property  or  money  has  been 
actually  transferred  or  paid  pursuant  to  the  contract  or  covenant,  be  void  against  the 
trustee  in  the  bankruptcy. 

(3)  "  Settlement  "  shall,  for  the  purpose  of  this  section,  include  any  conveyance  ox 
transfer  of  property. 


SECT.  I.]  IN    RE   TETLEY.      EX    PARTE   JEFFREY.  161 

eration.  In  my  opinion,  the  £50  a  year  which  was  to  be  provided  by 
the  mother  is  not  a  mere  colorable  or  fictitious  consideration,  but  a  real 
valuable  consideration.  With  regard  to  the  £25  a  year  which  was  to 
be  provided  by  the  brother,  I  need  not  decide  whether  that  would  be  a 
good  consideration  to  constitute  a  valuable  consideration  within  the 
meaning  of  section  47  ;  but  I  can  only  say  that  in  looking  through  the 
cases  on  the  statute  of  Elizabeth,  I  find  more  than  one  case  in  which 
the  making  of  a  loan  by  some  member  of  the  family  has  been  held  to 
be  a  sufficient  consideration  to  prevent  the  settlement  being  a  voluntary 
settlement ;  and  I  am  disposed,  therefore,  to  think  that  in  considering 
whether  or  not  there  was  a  substantial  consideration  here,  —  a  suffi- 
cient consideration  to  make  a  valuable  consideration  within  the  mean- 
ing of  section  47  of  the  bankruptcy  act,  1883,  —  one  ought  to  take  into 
consideration  not  only  the  £50  a  }'ear,  but  also  the  £25  a  year.  But 
be  that  how  it  may,  I  should  myself  have  found  the  £50  a  year  alone 
was  a  sufficient  consideration,  and  therefore  it  is  not  necessary  to  de- 
cide the  other  matter.  But  then  it  is  argued  that  the  settlement  was 
not  made  in  good  faith,  and  several  suggestions  are  made  in  support  of 
this  contention.  First,  it  is  said  that  the  young  man  was  of  extrava- 
gant habits,  and  likely  to  get  into  debt,  and  therefore  the  settlement 
must  have  been  made  with  the  intention  of  defeating  or  delaying  the 
future  creditors  whom  it  might  be  anticipated  the  extravagant  habits 
of  the  young  man  would  necessarily  create.  I  do  not  think  this  argu- 
ment good.  One  object  of  even1  marriage  settlement,  whether  ante- 
nuptial or  post-nuptial,  is  to  preserve  the  property  settled  on  the  wife, 
or  the  wife  and  children  as  the  case  ma}T  be,  and  to  deprive  the  settlor, 
the  husband,  of  the  power  of  dealing  with  the  property  inconsistently 
with  the  settlement,  even  if  he  should  be  so  minded,  and  to  leave  the 
property  subject  to  be  appropriated  to  the  payment  of  the  husband's 
debts  would  be  to  defeat  this  necessary  and  essential  object.  To  say 
that  a  post-nuptial  settlement  made  by  a  husband  for  valuable  consid- 
eration is  void  against  creditors  if  made  with  this  object,  is  to  say  that 
all  post-nuptial  settlements  are  bad.  This  could  not  be  argued ;  so 
counsel  for  the  trustee  in  bankruptcy  contended  that  a  settlement  was 
void  in  cases  where  the  husband  was  known  by  the  purchaser  from 
whom  the  valuable  consideration  passed  to  be  of  extravagant  habits. 
I  cannot  accede  to  that  argument.  I  never  knew  a  settlement  for  valu- 
able consideration  being  held  void  or  fraudulent  under  the  bankruptcy 
statutes,  or  under  the  statute  of  Elizabeth,  on  this  ground.  On  the 
contrary,  in  Thompson  v.  Webster,  4  De  G.  &  J.  600,  a  settlement  for 
valuable  consideration  —  the  consideration  being  a  loan  to  the  settlor 
by  his  mother  —  was  held  not  void  within  the  statute  of  Elizabeth, 
although  the  settlor  was  given  to  debt  and  prone  to  suretyship,  and 
that  to  the  knowledge  of  his  mother.  And  again  in  Holmes  v.  Penney, 
3  K.  &  J.  90,  it  is  stated  that  the  husband  was  a  man  of  extravagant 
habits  to  the  knowledge  of  his  father,  the  purchaser.  I  think  that  this 
suggestion  that  the  knowledge  that  the  husband  is  of  extravagant 


162  IN  RE   TETLEY.      EX   PARTE   JEFFREY.  [CHAP.  IV. 

habits,  and  the  desire  of  the  family  to  protect  the  property  against, 
amongst  other  things,  those  extravagant  habits,  makes  the  settlement 
void,  fails. 

Secondly,  it  is  said  that  the  fact,  if  fact  it  be,  that  the  suggestion  of 
a  valuable  consideration  came  from  the  solicitor  to  the  settlor,  and  not 
from  the  purchaser  giving  the  consideration,  shows  that  the  settlement 
was  not  made  in  good  faith.  Here,  again,  I  cannot  agree.  This  was 
the  fact  in  Ex parte  Eyre,  44  L.  T.  922,  —  I  mean  the  suggestion  of 
the  settlement  came  from  the  solicitor  for  the  husband.  More  than 
that,  the  reason  of  the  suggestion  being  by  the  solicitor  for  the  husband 
above  everything  was  in  that  case  the  extravagant  habits  of  the  hus- 
band. It  is  true  that  in  that  case  his  intemperate  habits  were  added  to 
his  extravagant  habits,  but  I  do  not  think  that  makes  any  difference. 

Thirdly,  it  is  said  that  if  the  settlement  is  a  settlement  for  valuable 
consideration,  and  not  otherwise  impeachable,  it  is  nevertheless  im- 
peachable  because  it  was  not  made  in  good  faith,  but  with  the  intention 
to  defeat  and  delay  creditors ;  and  in  support  of  this  contention  coun- 
sel for  the  trustee  relied  on  a  passage  in  an  opinion  of  counsel,  which 
opinion  was  shown  to  the  purchasers  and  their  solicitors.  Now  I  wish 
to  point  out  that  counsel,  when  he  makes  the  suggestion  about  the 
debtor  being  able  if  bankruptcy  were  impending  to  create  a  charge,  is 
not  dealing  with  the  actual  settlement  that  was  executed,  but  a  purely 
voluntary  settlement,  and  it  is  with  reference  to  that  that  he  makes  the 
suggestion  that  the  husband  might  take  this  step,  no  doubt  for  the 
purpose  of  defeating  and  dela}'ing  creditors.  Now  this  objection  seems 
to  me  to  be  much  more  formidable  than  any  of  the  other  objections. 
No  doubt  this  is  a  case  in  which,  there  being  value  given  for  the  settle- 
ment, there  must  be  evidence  of  an  actual  or  express  intent  to  defeat 
and  delay  creditors  before  one  can  find  the  settlement  void.  I  sa}-  that 
in  distinction  to  the  case  of  a  voluntary  settlement  where  it  is  not 
necessary  that  there  should  be  any  such  evidence.  It  is  only  necessary 
that  the  facts  should  be  such  that  the  settlement  has  a  necessary  tend- 
ency to  defeat  and  delay  creditors.  In  the  case  of  a  voluntary  settle- 
ment, however  honestly  the  settlor  may  execute  it,  however  little  he 
may  be  thinking  of  his  creditors  at  the  time  he  executes  it,  however 
free  he  may  be  from  any  desire  to  defeat  or  delay  his  creditors,  —  the 
settlement,  if  voluntary,  Is  void  as  against  creditors  if  its  necessary 
tendency  is  to  defeat  and  delay  them.  As  I  have  said  in  the  case  of  a 
settlement  for  valuable  consideration,  that  is  not  so.  You  must  prove 
the  actual  intention  to  defeat  and  delay  creditors.  But  if  this  intent  is 
proved,  I  take  it  that  the  whole  settlement  is  void,  and  not  merely  the 
trust  with  regard  to  the  life  interest.  Now,  in  form,  the  trust  in  the 
present  case  giving  the  husband  the  life  estate  with  a  gift  over,  in  case 
of  alienation,  is,  in  a  settlement  for  valuable  consideration,  unobjection- 
able. See  Detmold  v.  Detmold,  40  Ch.  D.  585.  Counsel  for  the  trustee 
in  bankruptcy  spoke  of  it  as  the  "so-called  authority  of  Detmold  v. 
Detmold."  I  do  not  know  why  he  said  that.  It  is  a  decision  of  Mr. 


SECT.  I.]  IN   RE   TETLEY.      EX   PARTE   JEFFREY.  163 

Justice  North,  and  he  seems  to  have  dealt  with  the  very  point ;  and  I 
observe  that  in  Mackintosh  v.  Pogose  [1895],  1  Ch.  5Q5,  which  is  the 
latest  authority  upon  the  subject,  Mr.  Justice  Stirling  refers  to  Detmold 
v.  Detmold  as  a  binding  authority,  stating  the  law.  Detmold  v.  Det- 
mold decides  that  a  settlement  for  valuable  consideration  in  that  form 
is  unobjectionable.  At  all  events,  effect  was  given  to  the  settlement, 
notwithstanding  that  subsequently  to  the  alienation  which  divested  the 
husband's  estate  the  husband  was  made  bankrupt.  But  it  would  seem 
that  a  clause  giving  the  settlor  a  life  interest  until  bankruptcy  is  void 
against  creditors.  The  decision  of  Mr.  Justice  Stirling  in  Mackintosh 
v.  Pogose  is  an  authority  for  this  proposition.  I  gather  from  his  judg- 
ment that  it  was  an  open  question  down  to  that  decision,  although  Lord 
Cairns,  in  the  House  of  Lords,  had,  prior  to  that,  expressed  an  opinion 
that  even  in  a  settlement  for  valuable  consideration  such  a  proviso  for 
determination  of  the  settlor's  estate  would  be  void.  I  have  not  to  de- 
cide that ;  I  have  only  to  decide  whether  the  settlement  in  the  form 
that  it  took  in  this  case  can  be  sustained.  It  seems  to  me  that  it  can. 
But  to  come  back  to  the  only  question  that  I  now  really  have  to  decide, 
—  which  is,  whether  there  is  such  evidence  that  I  ought  to  find  that 
this  settlement  for  valuable  consideration  was  in  fact  executed  to  defeat 
and  delay  creditors.  It  seems  to  me  that  apart  from  the  passages  I 
have  just  read  from  the  opinion  of  counsel,  there  is  no  evidence  of  any 
intention  to  defeat  and  delay  creditors.  So  far  as  the  existing  creditors 
were  concerned,  I  am  of  opinion  that  the  fact  that  the  purchasers  — • 
*Hat  is  to  say,  the  family,  who  were  advised  by  a  highly  respectable 
firm  of  solicitors  —  were  careful  to  inquire  as  to  what  debts  contracted 
in  infancy  by  the  settlor  there  were  which  he  could  be  sued  for,  or 
which  properly  ought  to  be  paid,  and  the  fact  that  £3,000  was  left  out 
of  the  settlement  for  the  express  purpose  of  paying  those  debts,  are 
matters  going  to  negative  the  suggestion  that  the  family,  the  purchasers 
here,  had  any  intention  to  defeat  and  delay  creditors.  It  is  quite  true 
that  I  gather  from  the  evidence  of  Burt,  the  trustee,  that  in  fact  there 
are  considerable  amounts  —  something  over  £1,000  —  of  debts  for 
necessaries  which  are  unpaid ;  but  I  do  not  think  that  that  fact  can 
affect  the  purchasers  here,  unless  they  intended  the  money  should  not 
be  applied  in  payment  of  those  just  debts,  or  were  utterly  careless 
whether  it  was  paid  or  not.  I  do  not  think  that  that  is  so  here.  I 
think  that  they  did  wish  that  all  this  young  man's  debts  should  be  paid, 
and  that  he,  having  married,  they  hoped  that  he  might  take  a  more 
serious  view  of  life,  and  would  try,  for  the  sake  of  his  wife,  to  live 
within  his  income.  Counsel  for  the  trustee  in  bankruptcy  urged  that 
all  that  was  necessary  here  was  to  show  that  there  was  a  want  of  good 
faith  on  the  part  of  the  bankrupt.  I  do  not  see  that  that  is  established 
here,  but  I  utterly  dissent  from  the  proposition.  It  seems  to  me  that 
it  is  perfectly  plain,  not  only  from  the  case  of  Mackintosh  v.  Pogose, 
but  many  other  cases,  that  the  good  faith  to  be  looked  at  is  the  good 
faith  of  the  purchaser,  and  not  the  good  faith  of  the  settlor.  I  put  it 


164  IN   RE   TETLEY.      EX   PARTE   JEFFREY.  [CHAP.  IV. 

to  myself:  Am  I,  with  this  evidence  before  me  of  the  wish  and  inten- 
tion of  these  people  that  the  just  debts  of  this  }roung  man  should  be 
satisfied,  and  that  a  sufficient  sum  should  be  left  outside  the  settlement 
and  appropriated  to  that  purpose,  to  find  that  there  was  a  dishonest  in- 
tention merely  because  the  opinion  of  counsel  with  regard  to  a  voluntary 
settlement  was  such  as  I  have  read  ?  I  think  not.  Then  with  regard 
to  the  settlement  itself,  it  was  strenuously  argued  that  the  settlement 
by  its  form  was  such  as  to  show  that  the  real  intention  was  to  leave 
the  property  in  the  control  of  the  husband  unless  and  until  he  should 
become  bankrupt.  Something  was  said  about  the  trust  being  revocable 
with  the  consent  of  the  trustees,  but  I  did  not  understand  that  part  of 
the  case  to  be  seriously  pressed.  I  have  read  through  the  settlement, 
and  although  it  does  seem  to  me  a  settlement  which  has  given  as  much 
control  as  possible  to  a  husband  in  a  marriage  settlement  which  is  in- 
tended to  be  effective,  yet  I  am  not  prepared  to  say  that  there  is  any- 
thing in  the  form  of  the  settlement  which  ought  to  make  me  hold  it 
void  as  against  creditors.  In  conclusion,  I  can  only  say  that,  holding 
as  I  do  that  this  is  a  settlement  for  valuable  consideration,  I  am  not 
prepared  to  hold  it  void  as  not  being  executed  in  good  faith.  On  the 
contrary,  I  think  the  case  really  comes  within  the  statement  in  the  two 
passages  from  the  judgments  of  Lord  Esher  and  Sir  James  Hannen  in 
Hance  v.  Harding,  20  Q.  B.  D.  732,  to  which  I  will  refer.  Lord  Esher 
says :  "It  appears  to  me,  on  consideration  of  all  the  circumstances, 
that  the  motive  of  both  of  the  parties  to  this  settlement  had  no  regard 
to  the  son's  being  pressed  b}*  his  creditors,  or  to  an}-  tangible  probability 
that  the  son  would  become  insolvent  or  bankrupt,  but  had  regard  to 
another  matter  altogether,  —  namely,  to  the  fact  that  the  son  had  be- 
come involved  in  an  unfortunate  connection  and  had  contracted  intem- 
perate habits,"  —  matters  that  might  be  likely  to  lead  to  extravagance. 
Then  Sir  James  Hannen  sa3'S  :  "  I  think  the  evidence  entirety  supports 
the  conclusion  of  the  learned  judge  in  the  court  below,  —  namety,  that 
the  transaction  was  entered  into  by  all  parties  with  perfect  bona  fides, 
and  had  nothing  to  do  with  an}"  intention  to  defeat  the  son's  creditors, 
but  was  dictated  by  prudential  motives  having  reference  to  the  necessity 
for  protecting  his  family,  which  had  arisen  out  of  his  conduct  with  some 
woman  with  whom  he  had  become  connected."  I  think,  therefore,  in  this 
case  the  settlement  had  really  nothing  to  do  with  defeating  and  delaying 
creditors,  and  that  the  object  was  realty  to  comply  with  the  necessity 
that  had  arisen,  now  that  this  young  man  had  married,  of  protecting 
some  property  for  his  wife.  That  could  not  be  done  by  a  voluntary 
settlement,  and  the  family  came  forward  and  provided  this  money  which 
enabled  it  to  be  done.  The  only  other  observation  I  would  make  is  to 
say  that  I  have  not  forgotten  or  failed  to  look  at  the  cases  of  Freeman 
v.  Pope,  L.  R.  5  Ch.  538,  and  Mackay  v.  Douglas,  L.  R.  14  Eq.  106, 
in  which  it  was  held  that,  where  a  man  who  nowadays  settled  his  prop- 
erty in  contemplation  of  entering  upon  a  hazardous  trade,  that  was  a 
settlement  made  for  the  purpose  of  defeating  and  dela}'ing  creditors, 


SECT.  I.]  STKATTON   V.   PUTNEY.  165 

although  there  might  be  no  creditor  in  existence  at  the  time  when  the 
settlement  was  sought  to  be  voided  who  was  a  creditor  at  the  date 
when  the  settlement  was  made.  But  I  do  not  think  that  the  mere  facf 
that  a  man  is  of  extravagant  habits  at  all  brings  the  case  within  Free- 
man v.  Pope,  or  creates  any  tangible  probability  that  the  man  may 
become  insolvent.  Under  these  circumstances  I  must  uphold  this  set- 
tlement, and  the  application  of  the  trustee  must  be  dismissed.  With 
regard  to  the  costs,  I  think,  as  pointed  out  by  Lord  Justice  Turner  in 
Thompson  v.  Webster,  4  De  G.  &  J.  600,  that  where  a  settlement  is 
made  under  circumstances  which  make  it  right  for  the  trustee  in  bank- 
ruptcy to  investigate  the  transaction,  costs  ought  not  to  be  given  against 
him.  There  will,  therefore,  be  no  order  as  to  costs.1 


STRATTON  v.  PUTNEY,  fc 
NEW  HAMPSHIRE  SUPREME  COURT,  DECEMBER,  1885.  t>*j»>  o 

[Reported  in  63  New  Hampshire,  577.]  '•iVf^V^A 

Ikr 
THE  two  cases  are  bills  in  equity  to  remove  a  cloud  from  the  title  to  "  « 

land  in  Antrim.  Facts  found  by  the  court:  July  7,  1882,  the  defend-  » 
ant  Putney,  being  the  owner  of  the  land  in  question,  convej'ed  it  to  the 
defendant  Elliott  by  a  deed  absolute  on  its  face,  but  in  reality  to  secure 
a  loan  of  $2,000  about  that  time  made  by  Elliott  to  him.  The  convey- 
ance was  not  made  to  hinder  or  delay  creditors,  nor  with  any  intent  to 
defraud  them.  Putney  paid  $700  of  the  money  thus  obtained  to  the 
plaintiffs,  Stratton,  Merrill  &  Co.,  upon  their  account  against  him,  and 
the  remainder  of  the  money  he  used  in  paying  other  accounts  for  mer- 
chandise and  in  his  business,  and  in  completing  the  store  on  the 
premises.  Putney's  liabilities  were  considerable  at  the  time  of  the 
conveyance,  and  he  was  in  embarrassed  circumstances. 

February  20,  1884,  the  plaintiffs  in  both  actions  attached  the  prem- 
ises on  writs  against  Putney,  and  having  obtained  judgments  at  the 
March  term,  1884,  caused  the  executions  issued  thereon  to  be  duly 
levied  upon  the  premises ;  and  it  is  by  virtue  of  that  levy  that  they 
claim  title  as  against  the  defendant  Elliott. 

Albin  &  Murtin^  for  the  plaintiffs. 

Briggs  &  Ifuse,  for  the  defendants. 

SMITH,  J.  The  conveyance  by  Putney  to  Elliott,  and  the  agreement 
executed  by  them  in  pursuance  of  the  understanding  entered  into  at 
the  time  of  the  negotiation  for  the  conveyance  of  the  land,  that  Elliott 
would  reconvey  to  Putney  upon  repayment  of  the  purchase-money, 
were  in  effect  a  loan  by  Elliott  to  Putney  of  $2,000,  and  a  taking  of 

1  Conf.  Gray,  Restraints  on  Alienation  (2d  ed.),  §§  90-100;  Re  Brewer's  settle> 
ment,  75  L.  T.  Rep.  N.  s.  177 ;  Mackintosh  v.  Pogose,  [1895]  1  Ch.  605. 


166  READE  V.   LIVINGSTON.  [CHAP.  IV. 

security  for  the  loan  by  deed  absolute  upon  its  face.  The  value  of  the 
land  exceeded  the  amount  of  the  loan,  and  Putney  was  in  embarrassed 
circumstances.  The  law  does  not  permit  debts  to  be  secured  in  this 
manner  as  against  creditors.  A  secret  understanding,  that  on  payment 
of  the  debt  the  land  shall  be  reconveyed,  constitutes  a  secret  trust  that 
renders  the  conveyance  void  against  subsequent  as  well  as  existing 
creditors.  The  conveyance  is  deemed  fraudulent,  whether  the  actual 
purpose  to  defraud  is  found  as  a  fact,  or  is  conclusively  presumed  from 
admitted  facts.  The  trust  being  established,  the  intent  to  defraud 
creditors  is  conclusively  presumed.  Such  a  trust  is  inconsistent  with 
an  absolute  sale.  Smith  v.  Lowell,  6  N.  H.  67 ;  Paul  v.  Crooker, 
8  N.  H.  288 ;  Winkley  v.  Hill,  9  N.  H.  31 ;  Tift  v.  Walker,  10  N.  H. 
150  ;  McConihe  v.  Sawyer,  12  N.  H.  403  ;  Page  v.  Carpenter,  10  N.  H. 
77  ;  Towle  v.  Hoit,  14  N.  H.  61 ;  Ladd  v.  Wiggin,  35  N.  H.  421,  426 ; 
Coolidge  v.  Melvin,  42  N.  H.  510;  Putnam  v.  Osgood,  51  N.  H.  192 
—  s.  c.,  52  N.  H.  148  ;  Ranlett  v.  Blodgett,  17  N.  H.  298  ;  Coburn  v. 
Pickering,  3  N.  H.  415  ;  Lang  v.  Stockwell,  55  N.  H.  561  ;  Cutting  v. 
Jackson,  56  N.  H.  253 ;  Plaisted  v.  Holmes,  58  N.  H.  293  — s.c., 
58  N.  H.  619  ;  Sumner  v.  Dalton,  58  N.  H.  295. 
ALLEN,  J.,  did  not  sit;  the  others  concurred. 

Decree  for  the  plaintiffs* 


SECTION   I.  (continued) 
(b)    VOLUNTARY  SETTLEMENTS  AND  CONVEYANCES. 

READE  v.   LIVINGSTON. 
NEW  YORK  COURT  OF  CHANCERY,  1818. 

[Reported  in  3  Johnson's  Chancery,  48) .] 

THE  CHANCELLOR  [KENT].  This  case  turns  upon  the  validity  of  the 
conveyance  by  Henry  G.  Livingston  to  Gilbert  Aspinwall. 

The  bill  charges,  that  Livingston  was  indebted  to  John  Reade,  the 
plaintiffs  intestate,  as  early  as  the  year  1800,  in  $6,000,  and  that  in 
August  term,  1807,  Reade  obtained  a  judgment  against  H.  G.  L.,  for 
upwards  of  that  sum,  and  that  $3,072  of  it  remains  unpaid.  That  by 
deed,  dated  the  7th  of  December,  1805,  H.  G.  L.  conveyed  his  lands, 
to  the  amount  in  value  of  $45,000,  to  Aspinwall,  in  trust  for  his  wife, 
and  that  he  had  no  other  property  to  satisfy  the  balance  of  the 
judgment. 

The  answer  of  H.  G.  L.,  and  of  his  wife,  admitted  that  in  1800 
there  were  sundry  unsettled  accounts  between  the  parties,  and  that 

1  Many  cases  in  accord  are  collected  in  Wait  on  Fraudulent  Conveyances,  §  272; 
14  Am.  &  Eng.  Encyc.  of  Law  (2d  ed.),  247. 


SECT.  I.]  KEADE  V.  LIVINGSTON.  167 

the}-  were  finally,  by  rule  of  court,  referred  to  referees,  and  that  the 
judgment  upon  such  reference  was  rendered,  as  charged  in  the  bill ; 
they  admit  further,  that  the  lands  included  in  the  deed  to  Aspiuwall 
composed  the  greater  part  of  the  real  estate  of  H.  G.  L.,  though  they 
den}-  the  lands  to  be  of  the  value  charged.  H.  G.  L.  states  that, 
prior  to  his  marriage,  and  with  a  view  to  it,  he  agreed  with  his  wife's 
father  to  settle  on  her,  and  her  children,  $30,000,  and  that  the  deed 
was  executed  in  pursuance  of  that  agreement.  He  admits  the  sum  of 
$1,392,  and  92  cents,  to  be  still  due  upon  the  judgment,  and  that 
Reade  might  have  obtained  satisfaction  out  of  his  personal  estate  ;  and 
he  declares  that  he  was  then  worth  little  or  no  property,  though  at  the 
time  of  his  marriage  he  was  worth  $80,000. 

It  appears  by  the  proof  taken  in  the  cause,  that  the  judgment  was 
founded  upon  two  bonds  dated  in  the  year  1794  ;  that  the  considera- 
tion of  them  was  a  farm  sold  by  Reade  to  H.  G.  L.,  and  that  with 
the  proceeds,  or  by  the  exchange  of  that  farm,  H.  G.  L.  procured  the 
greater  part  of  the  lands  included  in  the  deed  of  settlement.  That  he 
was  married  as  early  as  the  year  1791,  and  that  at  the  date  of  the 
judgment  he  owned  personal  property  to  $1,000,  but  it  does  not  appear 
that  he  possessed  an}-  real  property  free  from  incumbrance.  Valentine 
Nutter,  the  wife's  father,  says,  that  his  wife,  Mrs.  Nutter,  informed  him, 
just  previous  to  the  marriage,  that  H.  G.  L.  had  promised  to  settle 
$30,000  on  his  daughter,  and  that  H.  G.  L.,  frequently,  after  the  mar- 
riage, had  admitted  the  promise,  and,  at  last,  at  the  repeated  request 
of  the  witness,  executed  the  deed. 

The  deed  to  Aspinwall  contains  no  reference  to  or  recital  of  any 
previous  agreement,  but  it  is  simply  a  deed  in  fee,  for  the  consideration 
of  $5,000,  and  in  trust  to  convey  the  lands,  and  the  rents  and  profits 
thereof,  as  the  wife  of  H.  G.  L.,  by  deed  or  will,  should  direct;  and, 
in  default  of  such  direction,  in  trust  for  her  heirs.1 

If  the  settlement  be  considered,  as  I  think  it  ought  to  be,  uncon- 
nected with  any  antenuptial  agreement,  the  simple  question  then 
is,  whether  such  a  voluntary  settlement  after  marriage  by  a  party, 
indebted  at  the  time,  be  not,  as  against  such  creditors,  absolutely 
fraudulent  and  void. 

I  think  this  question  can  be  most  satisfactorily  answered  in  the 
affirmative  ;  but  the  manner  in  which  it  has  been  argued  imposes  on 
me  the  necessity  of  reviewing  the  cases. 

As  early  as  the  case  of  Shaw  v.  Standysh,  2  Vern.  326,  the  distinc- 
tion on  the  subject  of  voluntary  conveyances,  seems  to  have  been  taken 
and  understood,  between  creditors  existing  at  the  time  of  the  convey- 
ance, and  subsequent  creditors,  and  that  it  was  clearly  void  as  to  the 
former,  though  not,  as  of  course,  against  the  latter.  This  was  so  ad- 
vanced upon  argument  in  that  case,  and  perhaps  it  was  a  distinction 

1  A  portion  of  the  opinion  is  here  omitted  in  which  the  Chancellor  held  that  because 
of  the  Statute  of  Frauds  a  parol  antenuptial  agreement  for  a  settlement  gave  no 
added  validity  to  the  settlement  in  question 


168  EEADE    V.    LIVINGSTON.  [CHAP.  IV. 

of  common  law  growth ;  for  it  was  agreed  in  Tw3'ne's  Case,  3  Co. 
83,  a.,  that  an  estate  made  by  fraud  shall  be  avoided  only  by  him 
who  has  prior  right,  but  he  who  hath  subsequent  right  shall  not 
avoid  u.  init  in  the  Exchequer  case,  of  St.  Ainand  v.  Barbara, 
Comyn's  Uep.  255,  a  settlement  was  made  upon  a  child  by  a  party 
indebted  by  bond,  and  who  afterwards  became  also  indebted  b}'  bond. 
It  was  admitted  as  a  doubtful  point,  whether,  if  the  party  had  not  been 
indebted  at  the  time,  the  settlement  would  have  been  fraudulent  as 
against  the  subsequent  creditors  ;  but  as  the  party  was  indebted  at  the 
time,  the  settlement  was  void  against  debts  contracted  afterwards,  and 
all  the  bond  creditors  were  allowed  to  come  in  as  against  the  settle- 
ment. If  the  rule  was  otherwise,  it  was  said,  in  this  case,  that  the 
same  result  would  follow  in  another  wa}- ;  for  the  subsequent  bond 
creditors  would  be  permitted  to  stand  in  the  place  of  the  prior  bond 
creditors,  and  the  assets  be  so  marshalled  as  to  satisfy  all. 

Lord  Talbot  considered  it  a  doubtful  point,  and  forbore  an  opinion, 
in  Jones  v.  Marsh,  Cases  Temp.  Talbot,  63,  whether  a  voluntary  set- 
tlement, without  consideration,  would  be  held  fraudulent  as  against  a 
subsequent  creditor  of  many  years  afterwards.  But  though  there 
might  be  doubts  on  the  point  at  that  day,  it  seems  to  have  been  long 
since  settled,  that  if  the  party  be  not  indebted  at  the  time,  and  has  no 
fraudulent  views,  a  subsequent  creditor  cannot  impeach  a  prior  settle- 
ment, on  the  mere  ground  of  its  being  voluntary.  This  point  was  fully 
explained  b}-  Lord  Hardwicke,  in  Russel  v.  Hammond,  1  Atk.  15, 
where,  speaking  of  voluntary  conveyances,  he  says,  he  has  hardly 
known  a  case  where  the  person  conveying  was  indebted  at  the  time,  and 
the  settlement  not  deemed  fraudulent ;  but  the  couve3rance  is  not  fraud- 
ulent where  the  part}*  making  it  is  not  indebted  at  the  time.  Subse- 
quent debts  will  not  shake  such  a  settlement,  unless  there  be  some 
badge  of  actual  fraud,  as  a  continuance  in  possession. 

The  observation  of  the  Chancellor,  that  "  he  had  hardly  known  a 
case,"  would  imply  that  then1  had  been  cases  in  which  a  voluntary 
settlement  was  held  good,  even  though  the  party  was  indebted  at  the 
time.  But  it  is  sufficient  to  observe  that  no  such  case  appears  ;  and 
we  cannot  place  great  reliance  on  the  report,  as  to  the  precise  words 
used  by  the  court;  especially,  as  Lord  Hardwicke  speaks,  in  other 
cases,  without  an}'  such  qualification. 

In  Stileman  v.  Ashdown,  2  Atk.  477  ;  Brown  v.  Jones,  1  Atk.  190  ; 
Wheeler  v.  Caryl,  Arab.  121  ;  and  Hylton  v.  Biscoe,  Ves.  304,  Lord 
Hardwicke  defined  what  were  good  settlements  after  marriage,  as 
against  creditors ;  and  he  held  those  good  which  were  made  in  consid- 
eration of  a  portion  paid  at  the  time  b}r,  or  on  behalf  of,  the  wife,  or 
in  consideration  of  an  agreement  by  articles  before  marriage.  Such 
settlements  are  of  equal  validity  with  those  made  before  marriage,  in 
consideration  of  marriage,  and  which,  it  is  agreed,  are  good,  even 
though  the  party  may  be  then  indebted.  Nairn  v.  Prowse,  6  Ves. 
759;  Campion  v.  Cotton,  17  Ves.  271,  2;  George  v.  Milbanke, 


SECT.  I.]  KEADE   V.   LIVINGSTON.  169 

9  Ves.  193.  But  he  said,  if  the  settlement  after  marriage  was  in 
consideration  of  marriage  only,  it  was  voluntary  and  fraudulent  against 
creditors ;  and  though  he  was  not  even  indebted  at  the  time,  yet  if  he 
made  the  settlement  with  a  view  to  a  future  indebtedness,  it  was  equally- 
fraudulent.  So,  in  Ward  v.  Shallett,  2  Ves.  18,  he  admits  a  settle- 
ment after  marriage,  in  consideration  of  a  portion  advanced,  or  in  con- 
sideration of  the  wife  parting  with  a  contingent  interest  secured  by  her 
husband's  bond  before  marriage,  to  be  good ;  but  still  he  qualifies  the 
admission  by  saying,  there  must  be  no  "  fraud  or  great  inadequacy." 

All  the  cases  assume  the  position  to  be  undeniable,  that  the  husband 
must  not  be  indebted  at  the  time  of  the  settlement.  They  leave  no 
possible  doubt  on  the  point.  In  Middlecome  v.  Marlow,  2  Atk.  519, 
Lord  Hardwicke  held  a  post-nuptial  settlement  good,  "  there  being  no 
proof  of  the  husband  being  indebted  at  the  time ;  there  was  not  so 
much  as  a  single  creditor."  The  settlement  in  this  case  was  also  very 
reasonable,  it  being  only  of  the  personal  estate  received  from  the  wife. 
So,  again,  in  Taylor  v.  Jones,  2  Atk.  600,  a  settlement  after  marriage 
on  the  wife  and  children  was  held  fraudulent,  as  to  creditors,  under  the 
13th  Eliz. ;  and  this  case  is  worthy  of  notice  for  the  doctrines  which  it 
contains.  The  settlement  was  held  to  be  fraudulent  as  well  in  respect 
to  creditors  after  as  before  the  settlement,  for  the  debtor  continued  in 
possession  of  the  property  settled ;  and  the  statute  of  Eliz.  was  held  to 
extend  equally  to  the  subsequent  creditors  who  were  delayed  or  de- 
frauded. It  was  further  observed  by  the  Master  of  the  Rolls,  "  that  it 
was  not  material  in  that  case  what  the  circumstances  of  the  father 
were  at  the  time  of  the  settlement,  any  farther  than  as  evidence  to 
show,  if  he  was  in  indigent  circumstances,  that  it  was  made  with  an 
intent  to  commit  a  fraud." 

This  case  contains  also  a  just  observation  on  the  sympathy  which  is 
usually  excited,  or  attempted  to  be  excited,  in  these  cases,  in  favor  of 
the  objects  of  the  settlement.  "I  have  always,"  observes  the  Master 
of  the  Rolls,  "  a  great  compassion  for  wife  and  children ;  yet,  on  the 
other  side,  it  is  possible,  if  creditors  should  not  have  their  debts,  their 
wives  and  children  may  be  reduced  to  want." 

In  Walker  v.  Burrows,  1  Atk.  93,  Lord  Hardwicke  admitted  most 
explicitly,  that  if  the  party  was  indebted  at  the  time,  the  voluntary  set- 
tlement was  void ;  and  he  admitted,  with  equal  certainty,  that  if  the 
party  was  not  indebted  at  the  time,  or  immediately  after  the  execution 
of  the  deed  (which  would  be  evidence  of  intentional  fraud),  the  pro- 
vision for  the  wife  and  children  would  not  be  affected  by  subsequent 
debts.  But  if  the  fact  of  indebtedness  at  the  time  be  established,  then 
it  was  held,  that  "  it  would  have  run  on  so  as  to  take  in  all  subsequent 
creditors."  Mr.  Maddock  (1  Madd.  Ch.  Rep.  420,  note)  says  he  has 
seen  a  MS.  note  of  this  case,  and  that  it  agrees  with  the  printed  report ; 
and  this  case  may  be  considered  as  establishing  the  doctrine,  as  far  as 
the  decision  of  Lord  Hardwicke  could  establish  it,  that  indebtedness 
at  the  time  will  defeat  a  post-nuptial  voluntary  settlement,  and  that  if 


170  READE   V.   LIVINGSTON.  [CHAP.  IV. 

it  be  set  aside  in  favor  of  a  creditor  at  the  time,  all  the  subsequent 
creditors  are  let  in  on  the  principle  of  equal  apportionment,  or  mar- 
shalling of  assets. 

Lord  Hardwicke's  decisions  are  all  consistent  on  this  interesting 
subject. 

Thus,  in  White  v.  Sansom,  3  Atk.  410,  it  was  a  doubtful  point 
whether  the  plaintiff's  debt  accrued  until  after  the  settlement ;  and  on 
that  doubt  the  bill  was  dismissed.  In  Beaumont  v.  Thorp,  alread}7 
cited,  the  settlement  was  by  a  man  indebted  at  the  time,  and  it  was  set 
aside,  and  all  the  specialty  creditors,  before  and  after  the  settlement, 
were  let  in.  So,  in  Lord  Townshend  v.  Windhara,  2  Ves.  1,  Lord 
Hardwicke  expressed  himself  in  the  most  explicit  and  decided  manner. 
He  said,  that  he  took  it  that  a  man  "actually  indebted,  and  conveying 
voluntarily,  always  meant  to  defraud  creditors."  I  understand  htm  to 
mean  here  that  this  was  the  conclusion  of  law,  which  was  not  to  be 
gainsaid  ;  and  he  said  he  knew  of  no  case  where  a  voluntary  convey- 
ance to  a  child  by  a  man  indebted  at  the  time,  was  not  set  aside  for  the 
benefit  of  creditors  ;  but  he  said  that  a  voluntary  conveyance  without 
any  badge  of  fraud,  and  by  a  person  not  indebted  at  the  time,  would 
be  good,  though  he  afterwards  became  indebted.  He  spoke  strongly 
in  favor  of  the  superioritj'  of  the  claims  of  creditors  over  famil}'  pro- 
visions, and  observed,  that  "  though  an  unfortunate  case  may  arise  in 
respect  to  children,  for  whom  parents  are  bound  by  nature  to  provide, 
it  is  impossible  to  say,  the  consideration  in  respect  of  them  is  of  so 
high  a  nature  as  that  of  paying  just  debts,  and  therefore  the  court 
never  preferred  them  to  just  creditors."  In  Fitzer  v.  Fitzer,  2  Atk. 
511,  Lord  Hardwicke  asked  the  Attorney-General  if  there  was  an 
instance  in  that  court  where  a  conveyance  from  husband  to  wife,  with- 
out an}7  pecuniar}*  consideration  moving  from  the  wife,  had  been  held 
to  be  good  against  creditors. 

The  same  rules  and  distinctions  are  declared  and  enforced  through- 
out the  subsequent  decisions. 

In  Stephen  v.  Olive,  2  Bro.  90,  a  settlement  was  made  after  mar- 
riage, by  a  person  not  indebted  except  in  £500,  secured  by  mortgage 
on  the  settled  estate,  and  the  Master  of  the  Rolls  held,  that  a  settle- 
ment after  marriage  in  favor  of  a  wife  and  child,  by  a  person  not 
indebted  at  the  time,  was  good  against  subsequent  creditors,  and  he 
refused  to  grant  relief  in  this  case  to  a  subsequent  creditor,  notwith- 
standing the  settler  was  indebted  at  the  time,  seeing  that  the  debt 
existing  at  the  time  was  secured  by  a  mortgage  on  all  the  estate  settled. 
And  Lord  Eldon  afterwards,  in  George  v.  Milbanke,  9  Ves.  193, 
allows  of  the  same  exception  when  he  says,  that  if  the  voluntary  set- 
tlement contains  a  provision  for  the  payment  of  debts  then  existing, 
that  makes  it  good  against  all  future  creditors. 

It  cannot  escape  observation  that  the  only  question  in  these  cases 
was  respecting  the  subsequent  creditors.  There  is  no  doubt  in  any 
case  as  to  the  safety  and  security  of  the  then  existing  creditor.  No 


SECT.  L]  READE   V.   LIVINGSTON.  171 

voluntary  post-nuptial  settlement  was  ever  permitted  to  affect  him; 
and  the  cases  seem  to  agree  that  the  subsequent  creditors  are  let  in 
only  in  particular  cases,  as  where  the  settlement  was  made  in  contem- 
plation of  future  debts,  or  where  it  is  requisite  to  interfere  and  set  aside 
the  settlement  in  favor  of  the  prior  creditor,  or  where  the  subsequent 
creditor  can  impeach  the  settlement  as  fraudulent  by  reason  of  the 
prior  indebtedness. 

But  the  case  of  Lush  v.  Wilkinson,  5  Ves.  384,  has  been  much 
relied  upon,  as  if  it  gave  more  strength  to  the  settlement  against  sub- 
sequent debts,  than  the  prior  cases  seem  willing  to  allow. 

The  settlement  in  that  case  was  on  the  wife,  after  marriage,  of  an 
annuity  charged  upon  lots  subject  to  two  mortgages.  The  bill  was  by 
a  subsequent  creditor  against  the  executor  and  widow  of  the  husband, 
to  set  aside  the  deed  granting  the  annuitj*,  and  charged  that  the  hus- 
band was  indebted  to  several  persons,  and  in  insolvent  circumstances, 
at  the  date  of  the  deed.  The  answer  averred  that  the  husband  was 
not  insolvent,  and  that,  except  the  two  mortgages,  he  did  not  owe 
above  £100  at  the  time,  and  that  none  of  the  debts  were  due  at  his 
death. 

It  was  contended,  on  the  part  of  the  defendants,  that  there  was  no 
evidence  of  an}'  debt  at  the  time,  except  the  two  mortgages,  for  the 
plaintiff  produced  no  testimony ;  and  the  opinion  of  Lord  Mansfield,  in 
Doe  v.  Routledge,  Cowp.  705,  was  referred  to,  in  which  he  considers 
that  the  validity  of  a  voluntary  settlement  depended  on  the  fact  whether 
the  settler  was  indebted  at  the  time.  The  counsel  on  the  other  side 
admitted  the  law  to  be,  that  there  must  be  a  debt  at  the  time.  Lord 
Alvanlej",  the  Master  of  the  Rolls,  then  observes,  that  the  plaintiff 
appeared  as  a  subsequent  creditor,  and  without  proving  any  one  ante- 
cedent debt,  and  he  comes  with  a  fishing  bill,  and  desires  an  account 
and  an  inquiry,  in  order  to  prove  antecedent  debts ;  and  the  bill  was 
dismissed,  with  liberty  to  file  another. 

This  was  the  case  of  a  subsequent  creditor,  and  therefore  it  does 
not  apply  to  the  case  before  me,  except  so  far  as  it  assumes,  like  all 
the  other  cases,  the  rule  to  be  settled,  that  a  voluntary  settlement  never 
can  impair  a  subsisting  debt.  But  there  is  a  dictum  of  the  Master  of 
the  Rolls  in  this  case  which  has  been  thought  to  be  of  some  moment, 
where  he  observes,  that  "'a  single  antecedent  debt  will  not  do.  Every 
man  must  be  indebted  for  the  common  bills  for  his  house.  It  must 
depend  upon  this  whether  he  was  in  insolvent  circumstances  at  the 
time." 

Such  a  loose  dictum,  one  would  suppose,  was  not  of  much  weight ; 
especially  as  there  is  no  preceding  case  which  gives  the  least  coun- 
tenance to  it.  Another  Master  of  the  Rolls  had  before  said,  in  Taylor 
v.  Jones,  already  cited,  that  the  circumstances  of  the  settler  at  the 
time  of  the  settlement  were  not  material,  except  as  to  the  question  of 
actual,  intentional  fraud ;  and  that  intention,  we  know,  is  never  the 
inquiry  in  respect  to  the  demands  of  the  prior  creditors.  If  insolvency 


172  KEADE   V,   LIVINGSTON.  [CHAP.  IV. 

can  ever  be  made  a  question,  as  to  these  voluntary  settlements,  it  can 
only  be  in  respect  to  the  subsequent  creditors,  and  Lord  Alvanley  was 
speaking  of  such  a  case,  and  of  none  other.  But  even  here  the  cases 
are  numerous  to  show,  that  if  the  settlement  be  once  set  aside  by  the 
prior  creditors,  subsequent  creditors  are  entitled  to  come  in,  and  be 
paid  out  of  the  proceeds  of  the  settled  estate. 

In  Kidney  u.  Coussmaker,  12  Ves.  136,  the  question  was  on  a 
post-nuptial  settlement  as  against  creditors,  and  it  was  insisted  that 
they  were  entitled  to  defeat  it,  if  the  settler  was  indebted  at  the  time ; 
but  there  was  said  to  be  no  proof  of  a  single  debt  existing  at  the  date 
of  the  settlement.  Sir  Wrn.  Grant,  in  giving  his  opinion,  observed, 
that  in  Lush  v.  Wilkinson  the  bill  was  filed  for  the  purpose  of  affecting 
the  settlement,  upon  the  ground  that  the  settler  was  insolvent  at  the 
time  it  was  made,  and  that  there  was  no  evidence  in  support  of  such  a 
charge,  and  the  bill  was  dismissed.  He  said  he  was  disposed  to  follow 
the  decision  of  Lord  Rosslyn,  in  Montague  v.  Lord  Sandwich  (July, 
1797,  cited  ib.  p.  148,  and  5  Ves.  386,  note),  that  the  settlement  was 
fraudulent  only  a?  against  such  creditors  as  were  creditors  at  the 
time. 

Lord  Rosslyn,  in  the  case  referred  to,  declared  a  settlement  void  as 
to  the  creditors,  prior  to  its  date.  There  was  no  question  of  insolvency 
made,  but  it  was  clearly  held,  b}'  Lord  Rosslyn,  in  that  case  (see  12 
Ves.  156,  noi^),  that  if  the  settlement  be  affected  as  fraudulent  against 
such  creditors,  the  subject  is  thrown  into  assets,  and  all  subsequent 
creditors  are  let  in. 

The  last  case  on  the  subject  which  I  shall  notice  is  that  of  Holloway 
v.  Millard,  1  Madd.  Ch.  Rep.  414.  That  was  a  bill  by  creditors 
against  the  parties  to  a  voluntary  settlement  upon  a  natural  child, 
praying  that  the  deficiency  of  assets,  if  any,  might  be  made  good  out 
of  the  settled  estate.  The  plaintiffs  were  subsequent  creditors,  and  the 
bill  did  not  state  that  the  party  was  indebted  when  the  settlement 
was  made. 

The  counsel  for  the  plaintiffs  contended,  that  if  it  was  necessary  to 
show  that  the  party  was  indebted  at  the  time,  a  reference  ought  to  be 
ordered  for  that  purpose,  but  it  was  observed,  on  the  other  side,  that 
there  was  no  charge  in  the  bill  to  warrant  the  inquiry,  and  that  a  man 
must  be  indebted,  and  largely  so,  to  render  the  settlement  invalid; 
mere  trifling  debts  in  the  course  of  house-keeping  would  not  be 
sufficient. 

The  Vice-Chancellor,  in  giving  his  opinion,  said,  that  the  settler  here 
was  not  indebted  at  the  time,  and  that  a  voluntary  conveyance  could 
not  be  avoided  by  subsequent  creditors,  except  on  the  ground  of  a  fraud- 
ulent intent ;  for  that  it  was  clear  that  a  voluntary  settlement,  even  in 
favor  of  a  stranger,  by  a  person  not  indebted  at  the  time,  nor  meaning 
a  fraud,  was  good  against  subsequent  creditors.  But  he  said,  further, 
that  a  voluntary  disposition,  even  in  favor  of  a  child,  was  not  good  if 
the  party  was  indebted ;  and  he  refused  an  inquiry  whether  the  party 


SECT.  I.]  READE   V.   LIVINGSTON.  173 

was  indebted  at  the  time,  because  there  was  no  foundation  for  such  an 
inquiry  laid  by  the  bill. 

The  conclusion  to  be  drawn  from  the  cases  is,  that  if  the  party  be 
indebted  at  the  time  of  the  voluntary  settlement,  it  is  presumed  to  be 
fraudulent  in  respect  to  such  debts,  and  no  circumstance  will  permit 
those  debts  to  be  affected  by  the  settlement,  or  repell  the  legal  pre- 
sumption of  fraud.  The  presumption  of  law  in  this  case  does  not 
depend  upon  the  amount  of  the  debts,  or  the  extent  of  the  property  in 
settlement,  or  the  circumstances  of  the  party.  There  is  no  such  line 
of  distinction  set  up,  or  traced  in  any  of  the  cases.  The  attempt 
would  be  embarrassing,  if  not  dangerous  to  the  rights  of  the  creditor, 
arid  prove  an  inlet  to  fraud.  The  law  has,  therefore,  wisely  disabled 
the  debtor  from  making  any  voluntar}'  settlement  of  his  estate,  to  stand 
in  the  way  of  his  existing  debts.  This  is  the  clear  and  uniform  doc- 
trine of  the  cases,  and  it  is  sufficient  for  the  decision  of  the  present 
cause.1 

1  Early  v.  Owens,  68  Ala.  171  ;  McTeers  v.  Perkins,  106  Ala.  411  ;  Beall  v.  Lehman, 
Durr  Co.  110  Ala.  446,  450;  Harbour  &  Carroll's  Ky.  Stats.,  §  1907  ;  Hanson  v.  Buck- 
ner's  Ex.,  4  Dana,  251  ;  Miller  v.  Desha,  3  Bush,  212 ;  Fellows  v.  Smith,  40  Mich.  689 ; 
Swayze  v.  Doe,  21  Miss.  317  (overruled  by  Wilson  v.  Kohlheim,  46  Miss.  346) ;  Hurley 
v.  Taylor,  78  Mo.  238 ;  Loehr  v.  Murphy,  45  Mo.  App.  519  (overruled  by  Hoffman  v. 
Nolle,  127  Mo.  120;  Glacier  v.  Walker,  69  Mo.  App.  288);  City  National  Bank  ». 
Hamilton,  34  N.  J.  Eq.  158;  Gardner  v.  Kleinke,  46  N.  J.  Eq.  90;  O'Daniel  v.  Craw- 
ford, 4  Dev.  197  (modified  by  Code,  §  1547.  See  Clement  v.  Cozart,  112  N.  C.  412); 
Jackson  v.  Lewis,  34  S.  C  1  ;  Fink  v.  Denny,  75  Va.  663 ;  Flynn  v.  Jackson,  93  Va. 
341 ;  Rogers  p.  Verlander,  30  W.  Va.  619,  ace. 

In  Babcock  v.  Eckler,  24  N.  Y.  623,  632,  the  court  said:  "This  decision  [Reade 
r.  Livingston]  assumed  as  a  principle  of  law,  that  a  voluntary  conveyance  was 
voiu  as  to  any  and  all  then  existing  creditors,  without  regard  to  the  question  of 
intPiiUon,  because  it  might  ultimately  operate  to  defeat  the  collection  or  payment 
>t  c.ieir  debts.  A  similar  doctrine  was  held  by  the  Chancellor  in  Bayard  v.  Hoff- 
in  .n,  4  Johns.  Ch.  450.  It  is  not  important  now  to  inquire  how  far  this  doctrine 
was  supported  by  the  cases  cited  by  the  Chancellor.  Certainly,  Lord  Mansfield 
h"l.l  a  different  doctrine  in  Cadogan  v.  Kennet,  Cowp.  434,  a  different  doctrine  was 

lil  in  Jackson  v.  Town,  4  Cow.  599,  and  by  Judge  Spencer  in  Verplanck  v.  Sterry, 
-  .Johns.,  556,  557,  though  perhaps  not  decided  in  the  case.  In  this  case  Judge 

eucer  said  :  "  If  the  grantor  be  not  indebted  to  such  a  degree  as  that  the  settlement 
•-ill  deprive  the  creditors  of  an  ample  fund  for  the  payment  of  their  debts,  the  con- 
.  .i-ration  of  natural  love  and  affection  will  support  the  deed,  although  a  voluntary 
>  .e,  against  his  creditors ;  for,  in  the  language  of  the  decisions,  it  is  free  from  the 

1  nputation  of  fraud.     In  Jackson  ".  Seward,  8  Cow.,  406,  it  was  held  by  the  Court  of 
,  .rrors  that  a  conveyance  or  settlement,  in  consideration  of  blood  and  natural  affection, 
though  by  one  indebted  at  the  time,  was  jtrimn  facie  only,  and  not  conclusively  fraudu- 
lent.    Subsequently,  by  section  4,  of  title  3,  chapter  7,  part  2,  of  the  Revised  Statutes, 

2  K.  S.,  137,  it  was  declared  that  the  question  of  fraudulent  intent,  in  all  cases  arising 
under  the  provisions  of  that  chapter,  should  be  deemed  a  question  of  fact ;   and  that 
no  conveyance  or  charge  should  be  adjudged  fraudulent  as  against  purchasers  or  cred- 
itors, solely  on  the  ground  that  it  was  not  founded  on  a  valuable  consideration.     Thd 
question  in  this  case  arises  under  the  provisions  of  this  chapter  of  the  Revised  Stat- 
utes, which  treats  "of  fraudulent  conveyances  and  contracts,  relative  to  goods  and 
chattels  and  tilings  in  action."     No  decision  or  series  of  decisions,  then,  can  make  the 
question  of  fraud  in  this  case  a  question  of  law,  or  establish  that  there  is  a  legal  pre- 
•ramption  of  fraud  from  the  facts  and  circumstances  found  by  the  referee;  for  the 


174  READE   V.  LIVINGSTON.  [CHAP.  IV. 

With  respect  to  the  claims  of  subsequent  creditors,  there  is  more 
difficulty  in  arriving  at  the  conclusion,  and  I  am  not  called  upon  in  this,, 
case  to  give  any  definite  opinion,  for  there  are  no  such  creditors  before 
the  court.  But  since  the  subject  has  been  examined,  I  would  suggest 
what  appears  to  me,  at  present,  but  with  my  mind  still  open  for  further 
discussion  and  consideration,  to  be  the  better  opinion  from  the  cases ; 
it  is,  that  the  presumption  of  fraud  as  to  these  creditors,  arising  from 
the  circumstance  that  the  party  was  indebted  at  the  time,  is  repelled 
by  the  fact  of  these  debts  being  secured  by  mortgage,  or  by  a  provision 
in  the  settlement ;  that  if  no  such  circumstance  exists,  they  are  entitled 
to  impeach  the  settlement  by  a  bill  properly  adapted  to  their  purpose, 
and  charging,  and  proving  indebtedness  at  the  time,  so  that  their  rights 
will  not  depend  on  the  mere  pleasure  of  the  prior  creditors,  whether 
they  will  or  will  not  impeach  the  settlement ;  that  the  question  then 
arises,  to  what  extent  must  the  subsequent  creditors  show  a  prior  in- 
debtedness? Must  they  follow  the  dictum  of  Lord  Alvanley,  and  show 
insolvency,  or  will  it  be  sufficient  to  show  any  prior  debt,  however 
small,  as  is  contended  for  by  Mr.  Atherle}',  with  his  usual  ability,  in 
his  Treatise  on  Marriage  Settlements?  Ath.  Mar.  Set,  p.  212  to  219. 
I  should  apprehend  that  the  subsequent  creditors  would  be  required  to 
go  so  far,  and  only  so  far,  in  showing  debts  as  would  be  sufficient  to 
raise  reasonable  evidence  of  a  fraudulent  intent.  To  show  any  existing 
debt,  however  trifling  and  inevitable  (to  which  every  person  is,  more 
or  less,  subject),  would  not  surely  support  a  presumption  of  fraud  in 
fact ;  no  voluntary  settlement  in  any  possible  case  could  stand  upon 
that  construction.  I  should  rather  conclude,  that  the  fraud  in  the 
voluntary  settlement  was  an  inference  of  law,  and  ought  to  be  so,  as 
far  as  it  concerned  existing  debts ;  but  that  as  to  subsequent  debts, 
there  is  no  such  necessary  legal  presumption,  and  there  must  be  proof 
of  fraud  in  fact ;  and  the  indebtedness  at  the  time,  though  not  amount- 
ing to  insolvency,  must  be  such  as  to  warrant  that  conclusion.  It 
appears,  in  all  the  cases  (and  particularly  in  the  decision  of  Sir  Thomas 
Plumer  since  the  publication  of  M.  Atherley's  treatise),  that  a  marked 
distinction  does  exist,  under  the  statute  of  13  Eliz.,  between  prior  and 
subsequent  creditors,  in  respect  to  these  voluntary  settlements  ;  and  it 
is  now  settled  that  the  settlement  is  not  void,  as  of  course,  against  the 
latter,  when  there  were  no  prior  debts  at  the  time. 

The  law  in  Massachusetts  seems  to  be  laid  down  according  to  this 
view  of  the  subject. 

In  Bennett  v.  Bedford  Bank,  11  T}*ng,  421,  there  was  a  voluntary 
conveyance  to  a  son  by  a  father,  indebted  at  the  time,  but  not  in  em- 
barrassed circumstances,  or  equal  in  debt  to  the  value  of  his  property. 
The  debt  to  the  plaintiff  did  .not  accrue  until  several  years  afterwards. 
It  was  held  by  the  court,  that  as  there  was  no  fraud  in  fact,  the  deed 

statute  declares  that  the  question  of  fraud  shall  be  deemed  a  question  of  fact,  and  by 
declaring  it  to  be  a  question  of  fact,  in  effect  declares  that  there  is  no  such  legal 
presumption." 


SECT.  I.]  READE   V.   LIVINGSTON.  175 

in  this  case  was  good  against  the  subsequent  creditor,  "  and  against 
all  persons  but  such  as  were  creditors  at  the  time." 

But  there  is  a  case,  recently  decidedly  by  the  Supreme  Court  of 
Errors  of  Connecticut,  Salmon  v.  Bennett,  1  Day's  Conn.  Rep.  N.  S. 
p.  525,  which  lays  down  a  rule  somewhat  different  from  that  which  I 
have  deduced  from  the  English  cases. 

The  question  arose  in  an  action  of  ejectment.  The  plaintiff  had  pur- 
chased Virginia  lands  of  Sherwood,  in  1794,  and  paid  him  the  purchase 
money.  In  1809,  by  a  decree  in  Chancery,  the  sale  was  annulled,  on 
the  ground  of  fraud,  and  the  purchase-money  decreed  to  be  refunded, 
on  condition  that  the  plaintiff  executed  a  release.  This  was  done,  and 
he  afterwards,  in  1814,  levied  an  execution  founded  on  that  decree,  on 
lands  which  Sherwood  owned  in  1794,  but  which  he  had  conve3'ed  to 
his  son  in  1798,  in  consideration  of  natural  affection  only,  and  which 
lands  the  son  had,  in  1802,  convej'ed  to  the  defendant,  with  knowledge 
of  the  deed  to  the  son.  It  was  proved,  that  when  Sherwood  executed 
the  deed  of  gift,  he  was  not  indebted  to  an}-  person,  except  to  the 
plaintiff,  in  the  manner  stated,  and  that  the  lands  conveyed  did  not 
contain  more  than  one-eighth  part  of  his  real  estate.  But  it  was  ad- 
mitted, that  long  before  the  levy  of  the  execution  he  had  conveyed  all 
his  real  estate,  and  was,  at  that  time,  destitute  of  property. 

One  question  was,  whether  the  deed  to  the  son,  being  voluntary,  was 
not  fraudulent  as  against  the  plaintiff ;  and  as  the  opinion  of  the  court 
was  on  this  point,  I  need  not  notice  any  other.  It  was  also  made  a 
question,  at  the  bar,  whether  the  plaintiff  was  to  be  deemed  an  existing 
creditor  at  the  time  of  the  deed  to  the  son  ;  but  as  the  court  assumed 
the  fact  of  an  existing  indebtedness  at  the  time  of  the  conveyance,  I 
need  not  notice  that  point. 

The  judgment  of  the  court  was  in  favor  of  the  defendant,  and  the 
opinion  of  eight  of  the  judges,  as  delivered  by  the  Chief  Justice,  was, 
that  a  distinction  existed  in  the  case  of  a  voluntary  conveyance,  be- 
tween the  children  of  the  grantor  and  strangers,  and  that  mere  indebt- 
edness at  the  time,  will  not,  in  all  cases,  render  a  voluntary  conveyance 
void  as  to  creditors,  where  it  is  a  provision  for  a  child  ;  that  an  actual 
or  express  intent  to  defraud  need  not  be  proved,  for  this  would  be 
impracticable  in  many  instances  where  the  conve3'ance  ought  not  to  be 
established,  and  it  may  be  collected  from  the  circumstances  of  the  case  ; 
that  if  there  be  no  fraudulent  intent,  and  the  grantor  be  in  prosperous 
circumstances,  unembarrassed,  and  not  considerably  indebted,  and  the 
gift  a  reasonable  provision  for  the  child,  leaving  ample  funds  unincum- 
bered,  for  the  payment  of  the  grantor's  debts,  the  voluntary  convej'- 
ance  to  the  child  will  be  valid  against  existing  creditors.  But  if  the 
grantor  be  considerably  indebted  and  embarrassed,  and  on  the  eve  of 
bankruptcy,  or  if  the  gift  be  unreasonable,  disproportioned  to  his 
property,  and  leaving  a  scanty  provision  for  his  debts,  the  conveyance 
will  be  void,  though  there  be  no  fraudulent  intent.  And  it  was  con- 
cluded, that  under  the  circumstances  of  that  case,  the  indebtedness  o/ 


176  READE   V.   LIVINGSTON.  [CHAP.  IV. 

the  grantor  at  the  time,  to  the  plaintiff,  was  not  sufficient  to  atfect  the 
conveyance  to  his  son. 

The  court  do  not  refer  to  authorities  in  support  of  their  opinion,  and 
perhaps  they  may  have  intended  not  to  follow,  strictly,  the  decisions 
at  Westminster  Hall,  under  the  statute  of  13  Eliz.  I  can  only  say 
that,  according  to  my  imperfect  view  of  those  decisions  (and  by  which 
I  consider  myself  governed),  this  case  was  not  decided  in  conformity 
to  them  ;  but  I  make  this  observation  with  great  deference  to  that 
court.  There  ma}-  be  loose  sayings,  and  mere  notes  of  cases,  from 
which  nothing  very  certain  or  intelligible  can  be  deduced ;  but  I  have 
not  been  able  to  find  the  case  in  which  a  mere  voluntary  conveyance 
to  a  wife  or  child  has  been  plainty  and  directly  held  good  against  a 
creditor  existing  at  the  time.  The  cases  appear  to  me  to  be  upon  that 
point  uniformly  in  favor  of  the  creditor.  The  Vice-Chancellor,  in  Hol- 
loway  v.  Millard,  says,  in  so  many  words,  that  "  a  voluntary  dispo- 
sition, even  in  favor  of  a  child,  is  not  good,  if  the  party  is  indebted  at 
the  time."  The  cases  of  St.  Amand  v.  Barbara,  Fitzer  v.  Fitzer,  Taylor 
v.  Jones,  and,  indeed,  the  general  language  throughout  the  cases,  seem 
to  me  to  establish  this  point.  So,  Lord  Hardwicke  observed,  in  Lord 
Townshend  v.  Windham,  that  "  he  knew  of  no  case  on  the  13th  Eliz. 
where  a  man,  indebted  at  the  time,  makes  a  mere  voluntary  conve3-ance 
to  a  child,  without  consideration,  and  dies  indebted,  but  that  it  shall 
be  considered  as  part  of  his  estate  for  the  benefit  of  his  creditors."  In 
a  preceding  part  of  the  same  page  he  said  expressly,  there  was  "  no 
such  case,"  unless  the  conveyance  was  "  in  consideration  of  marriage, 
or  other  valuable  consideration  ;  "  and  he  draws  the  distinction  between 
prior  and  subsequent  creditors,  in  saying,  that  if  the  voluntary  con- 
veyance of  real  estate,  or  a  chattel  interest,  was  by  one  not  indebted 
at  the  time,  and  was  for  a  child,  and  no  particular  evidence  or  badge  of 
fraud  as  Against  subsequent  creditors,  it  would  be  good.  The  decision 
in  that  case  was,  that  a  general  power  of  appointment  given  over  an 
estate,  in  lieu  of  a  present  interest  in  it,  having  been  executed  voluii- 
tarih",  though  for  a  daughter,  was  to  be  deemed  assets  in  favor  of 
creditors. 

If  the  question  rests  not  upon  an  actual  fraudulent  intent  (as  is  ad- 
mitted in  all  the  cases),  it  must  be  a  case  of  fraud  in  law,  arising  from 
the  fact  of  a  voluntarj7  disposition  of  property,  while  indebted  ;  and 
the  inference  founded  on  that  fact  cannot  depend  on  the  particular  cir- 
cumstances, or  greater  or  less  degree  of  pecuniary  embarrassment  of 
the  party.  These  are  matters  for  consideration,  when  we  are  seeking, 
as  in  the  case  of  subsequent  creditors,  for  actual  fraud.  I  apprehend 
it  is,  upon  the  whole,  better  and  safer  not  to  allow  a  party  to  yield  to 
temptation,  or  natural  impulse,  by  giving  him  the  power  of  placing 
property  in  his  famil}*  be}'ond  the  reach  of  existing  creditors.  He  must 
be  taught,  by  the  doctrines  of  the  court,  that  the  claims  of  justice  are 
prior  to  those  of  affection.  The  inclination  of  my  mind  is  strongly  in 
favor  of  the  polic}'  and  wisdom  of  the  rule,  which  absolutely  disables  a 


SECT.  I.]  READE   V.   LIVINGSTON.  177 

man  from  preferring,  by  an}-  arrangement  whatever,  and  with  whatever 
intention,  by  gifts  of  his  propert}-,  his  children  to  his  creditors. 
Though  hard  cases  may  arise  in  which  we  should  wish  the  rule  to  be 
otherwise,  }'et,  as  a  permanent  regulation,  more  good  will  ensue  to 
families,  and  to  the  public  at  large,  by  a  strict  adherence  to  the  rule, 
than  by  rendering  it  subservient  to  circumstances,  or  by  making  it  to 
depend  upon  a  fraudulent  intent,  which  is  so  difficult  to  ascertain,  and 
frequently  so  painful  to  infer. 

The  effect  of  these  donations,  by  a  debtor,  inter  vivos,  is  much  dis- 
cussed by  Voet,  in  his  Commentaries  on  the  Digest,  lib.  39,  tit.  5.  De 
Donationibus,  s.  20  ;  and  he  concludes,  that  the  property  in  the  hands 
of  the  donee  is  chargeable  with  the  existing  debts  of  the  donor.  "  Ex 
eo  autem,  quod  donatur  competentiae  gaudens  beneficio  deducit  primo 
ses  alienum,  facilis  est  decisio  quaestionis',  utrum  donatis  omnibus  bonis, 
aut  majore  eorum  parte,  donatarius  ad  aes  alienum  donantis  solvendum 
obligatus  sit  ?  —  ^Equum  baud  foret,  ex  liberalitate,  defuncti  creditores 
ejus,  donatione  antiquiores  (nam  qui  postea  demum  crecliderunt,  ex 
donatione  praecedente  jam  perfecta  videri  nequeunt  fraudati  esse)  cred- 
ito  suo  defraudari,  satiusque  visum,  donata  revocari  per  actionom 
Paulianam,  etiam  a  donatario  in  bona  fide  posito  ac  fraudis  baud  par- 
ticipe.  Dum  melior  esse  debuit  conditiocrcditorum  de  damno  evitando 
agentium,  quam  donatarii  agentis  de  lucro  captando.  —  Secundum 
hodierni  juris  simplicitatem  donatarium  a  creditoribus  donatoris  recta 
via  absque  circuitu  ad  solvendum  aes  alienum  donantis  compelli  posse, 
post  multos  alios  citatos  tradit.  Graenewegen,  ad  1.  28,  ff.  h.  t." 

This  learned  civilian  makes  the  same  distinction  that  our  laws  does, 
between  debts  existing  at  the  time  and  debts  created  subsequent  to 
the  gift. 

The  same  doctrine,  on  this  subject,  in  all  essential  respects,  is 
adopted  in  France.  The  gift  of  specific  articles  does  not  charge  the 
donee  with  the  debts  of  the  donor,  unless  the  latter  knew,  or  ought  to 
have  known,  that  he  was  not  solvent  at  the  time ;  in  which  case  the 
gift  is  held  to  be  fraudulent.  But  in  other  more  general  dispositions  of 
the  whole,  or  part,  of  his  estate,  the  property  in  the  hands  of  the 
donee  is  subject  to  the  existing,  though  not  to  the  future,  debts,  to  the 
value  of  the  gift.  (TraittS  des  Donat.  entre  vifs,  sect.  3,  art.  1,  §  2. 
CEuvres  posth.  de  Pothier,  torn.  6.) 

The  question  does  not  arise  in  this  case  as  to  what  extent  these 
voluntary  dispositions  of  property  can  be  reached.  Here  the  land 
itself  exists  in  the  hands  of  the  trustee  for  the  wife  ;  and  we  have  no 
concern,  at  present,  with  the  question  how  far  gifts  of  chattels,  of 
money,  of  choses  in  action,  of  corporate,  of  public  stock,  or  of  prop- 
erty alienated  to  a  bona  fide  purchaser,  can  be  affected.  The  debt  in 
the  present  case  was  large,  and  the  disposition  extravagant,  being  of 
the  greater  part  of  the  real  estate,  and  we  have  no  evidence  of  suf- 
ficient property  left  unincumbered.  Even  if  we  were  to  enter  into  the 
particular  circumstances  of  the  case,  I  should  have  no  doubt  of  the 
justice  of  the  creditor's  claim. 


178  FREEMAN    V.    POPE.  [CHAP.  IV. 

I  shall,  accordingly,  decree,  that  a  reference  be  had  to  ascertain  the 
balance  of  principal  and  interest  due  to  the  plaintiff,  and  that  so  much 
of  the  lands,  included  in  the  conveyance  to  Gilbert  Aspinwall,  as  the 
Master  shall  judge  sufficient  to  satisfy  that  amount,  with  costs,  be  sold  ; 
and  that  the  said  G.  A.  be  directed  to  join  in  the  conveyance,  &c. 

Decree  accordingly. 


FREEMAN  v.  POPE. 
CHANCERY,  JUNE  7,  1870. 
[Reported  in  Law  Reports,  5  Chancery  Appeals,  538.] 

THIS  was  an  appeal  by  the  defendant  Pope  from  a  decree  of  Vice- 
Chancellor  JAMES,  setting  aside  a  voluntar}-  settlement,  dated  the  3d 
of  March,  1863,  by  which  the  Rev.  J.  distance  assigned  to  trustees  for 
the  benefit  of  Julia  Pope  (then  Julia  Thrift)  a  polity  of  insurance  for 
£1000  (effected  by  him  in  1845  on  his  own  life),  and  covenanted  to  pay 
the  premiums.  It  appeared  that  he  had  previously  settled  this  policy 
upon  her  in  1853,  reserving  a  power  of  revocation,  which  he  exercised 
in  1861,  in  order  that  he  might  receive  a  bonus. 

At  the  time  when  the  settlement  now  impeached  was  made,  the 
settlor  held  two  livings  producing  a  net  income  of  £815,  and  he  was 
entitled  to  a  Government  life-annuity  of  a  little  more  than  £180,  and 
to  a  cop3'hold  cottage  which  he  on  the  same  da}r  covenanted  to  sur- 
render to  Mrs.  Walpole,  the  mother  of  Julia  Pope,  for  £50.  He  had 
no  other  propertj*  except  his  furniture,  and  he  was  being  pressed  by 
his  creditors.  Among  other  debts,  he  owed  £489  to  Messrs.  Gtirney, 
his  bankers  at  Norwich,  and  £7  8s.  6d.  to  a  postmaster.  On  the  same 
3d  of  March,  1863,  he  borrowed  from  Mrs.  Walpole  £350,  for  which 
he  gave  her  a  bill  of  sale  of  his  furniture.  Mrs.  Walpole  was  privy 
to,  and  one  of  the  trustees  of,  the  settlement.  At  the  same  time  he 
made  an  arrangement  with  his  bankers  that  his  solicitor,  Mr.  Copeman, 
should  receive  certain  income  from  the  benefices,  and  pay  out  of  it  £50 
each  half-year  towards  discharge  of  the  balance.  The  banking  account 
at  Norwich  was  to  remain  a  dead  account,  and  to  be  discharged,  with 
interest,  by  the  above  instalments.  A  new  account  was  to  be  opened 
with  the  Aylsham  branch  of  the  same  bank,  and  Copeman  was  to  pay 
the  residue  of  the  income  (after  deducting  the  £50)  to  this  new  account, 
which  was  to  be  an  ordinary  current  banking  account. 

At  the  testator's  death,  in  April,  1868,  the  balance  of  £489  due  to  the 
bankers  had  been  reduced  to  £117  by  means  of  the  annual  instalments 
of  £50.  The  Aylsham  account  showed  no  balance  on  either  side.  The 
postmaster's  debt  of  £7  85.  6rf.,  and  Mrs.  Walpole's  £350,  with  an 
arrear  of  interest,  remained  unpaid.  The  other  debts  due  at  the  date 
of  the  settlement  had  been  paid.  The  settlor,  however,  owed  many 


SECT.  I.]  FREEMAN   V.   POPE.  179 

debts  subsequently  contracted,  and  there  were  no  assets  whatever  to 
pay  them  ;  the  furniture  having  been  sold  under  a  subsequent  bill  of 
sale,  to  which  Mrs.  Walpole  had  agreed  to  postpone  her  securit}-. 

The  plaintiff,  a  tradesman  who  had  supplied  goods  to  the  settlor  after 
the  date  of  the  settlement,  filed  his  bill  for  administration  of  the  settlor's 
estate,  and  to  set  aside  the  settlement,  to  the  benefit  of  which  the  de- 
fendant Pope  had  become  entitled  under  an  appointment  by  Julia  Pope. 

Vice-Chancellor  JAMES  made  a  decree  for  setting  aside  the  settle- 
ment, from  which  Pope  appealed. 

Mr.  Morgan,  Q.  C.,  and  Mr.  H.  A.  Giffard,  for  the  appellant. 

Mr.  Kay,  Q.  C.,  and  Mr.  Cozen-Hardy,  for  the  plaintiff,  were  not 
called  upon. 

LORD  HATHERLEY,  L.  C.  The  principle  on  which  the  statute  of  13 
Eliz.  c.  5  proceeds  is  this,  That  persons  must  be  just  before  they  are 
generous,  and  that  debts  must  be  paid  before  gifts  can  be  made. 

The  difficulty  the  Vice-Chancellor  seems  to  have  felt  in  this  case  was, 
that  if  he,  as  a  special  juryman,  had  been  asked  whether  there  was 
actually  any  intention  on  the  part  of  the  settlor  in  this  case  to  defeat, 
hinder,  or  delay  his  creditors,  he  should  have  come  to  the  conclusion 
that  be  had  no  such  intention.  With  great  deference  to  the  view  of  the 
Vice-Chancellor,  and  with  all  the  respect  which  I  most  unfeignedly  enter- 
tain for  his  judgment,  it  appears  to  me  that  this  does  not  put  the  ques- 
tion exactly  on  the  right  ground ;  for  it  would  never  be  left  to  a  special 
jury  to  find,  simpliciter,  whether  the  settlor  intended  to  defeat,  hinder, 
or  delay  his  creditors,  without  a  direction  from  the  judge  that  if  the 
necessary  effect  of  the  instrument  was  to  defeat,  hinder,  or.  delay  the 
creditors,  that  necessary  effect  was  to  be  considered  as  evidencing  an 
intention  to  do  so.  A  jury  would  undoubtedly  be  so  directed,  lest  they 
should  fall  into  the  error  of  speculating  as  to  what  was  actually  passing 
in  the  mind  of  the  settlor,  which  can  hardty  ever  be  satisfactorily  ascer- 
tained, instead  of  judging  of  his  intention  b}r  the  necessary  consequences 
of  his  act,  which  consequences  can  always  be  estimated  from  the  facts 
of  the  case.  Of  course  there  may  be  cases  —  of  which  Spirett  v.  Wil- 
lows, 3D.  J.  &  S.  293,  is  an  instance  —  in  which  there  is  direct  and 
positive  evidence  of  an  intention  to  defraud,  independently  of  the  con- 
sequences which  may  have  followed,  or  which  might  have  been  expected 
to  follow,  from  the  act.  In  Spirett  v.  Willows  the  settlor,  being  solvent 
at  the  time,  but  having  contracted  a  considerable  debt,  which  would 
fall  due  in  the  course  of  a  few  weeks,  made  a  voluntary  settlement  by 
which  he  withdrew  a  large  portion  of  his  property  from  the  payment  of 
debts,  after  which  he  collected  the  rest  of  his  assets  and  (apparently  in 
the  most  reckless  and  profligate  manner)  spent  them,  thus  depriving 
the  expectant  creditor  of  the  means  of  being  paid.  In  that  case  there 
was  clear  and  plain  evidence  of  an  actual  intention  to  defeat  creditors. 
But  it  is  established  03*  the  authorities  that,  in  the  absence  of  an}r  such 
direct  proof  of  intention,  if  a  person  owing  debts  makes  a  settlement 
which  subtracts  from  the  property  which  is  the  proper  fund  for  the  pa}-- 


180  FREEMAN   V.   POPE.  [CHAP.  IV. 

ment  of  those  debts,  an  amount  without  which  the  debts  cannot  be  paid, 
then,  since  it  is  the  necessary  consequence  of  the  settlement  (supposing 
it  effectual)  that  some  creditors  must  remain  unpaid,  it  would  be  the 
duty  of  the  judge  to  direct  the  jury  that  they  must  infer  the  intent  of 
the  settlor  to  have  been  to  defeat  or  delay  his  creditors,  and  that  the 
case  is  within  the  statute. 

The  circumstances  of  the  present  case  are  these  :  The  settlor  was 
pressed  by  his  creditors  on  the  3d  of  March,  1863.  He  was  a  clergy- 
man  with  a  very  good  income,  but  a  life  income  only.  He  had  a  life- 
annuity  of  between  £180  and  £190  a  year,  and  besides  that  he  had  an 
income  from  his  benefice  —  his  income  from  the  two  sources  amounting 

o 

to  about  £1000  a  year.  But  at  the  same  time  his  creditors  were  press- 
ing him,  and  he  had  to  borrow  from  Mrs.  Walpole,  who  lived  with  him 
as  his  housekeeper,  a  sum  of  £350  wherewith  to  pay  the  pressing  credi- 
tors. That  accordingly  was  done,  and  he  handed  over  to  her  as 
security  the  only  property  he  had  in  the  world  beyond  his  life  income 
and  the  policy  which  is  now  in  question,  namely,  his  furniture,  and  a 
copyhold  of  trifling  value.  It  is  said,  however,  that  the  value  of  the 
furniture  exceeded  (and  I  will  take  it  to  be  so)  by  about  £200  the  value 
of  the  debt  which  was  secured  to  Mrs.  Walpole.  That  debt  may  be 
put  out  of  consideration,  not  only  on  that  account,  but  because  Mrs. 
Walpole,  being  herself  a  trustee  of  the  settlement  which  is  impeached, 
cannot  be  heard  to  complain  of  that  settlement.  But  he  also  owed  at 
the  time  of  this  pressure  a  debt  of  £339  to  his  bankers  at  Norwich,  and 
he  required,  for  the  purpose  of  clearing  the  pressing  demands  upon 
him,  not  qnly  the  sum  which  he  borrowed  from  Mrs.  Walpole,  but  an 
additional  sum  of  £150,  which  sum  the  bankers  agreed  to  furnish, 
making  their  debt  altogether,  at  the  date  of  the  execution  of  this  settle- 
ment, a  debt  of  £489.  The}"  made  with  him  an  arrangement  (which 
probably  was  intended,  in  a  great  measure,  as  a  friendly  act  towards  a 
gentleman  who  was  seventy-three  years  of  age,  and  the  duration  of 
whose  life,  therefore,  could  not  be  expected  to  be  very  long),  that  they 
would  for  the  present  (for  it  cannot  be  held  to  be  more  than  a  present 
arrangement)  suspend  the  proceedings,  which,  it  appears,  the}'  were 
contemplating,  upon  his  allowing  his  solicitor  to  receive  part  of  his 
income,  pay  £100  a  year  towards  liquidating  the  £489  (which  was  to 
be  carried  to  what  is  called  a  "  dead  account"),  and  pa}'  the  residue 
into  their  branch  bank  at  Aylsham,  to  an  account  upon  which  the 
settlor  might  draw.  That  arrangement  was  made,  but  there  was  no 
bargain  on  the  part  of  the  bankers  that  they  would  not  sue  at  anytime 
they  thought  fit ;  and,  on  the  other  hand,  they  had  nothing  in  the  shape 
of  security  for  the  payment  of  their  debt,  for  they  had  not  taken  out 
sequestration,  and  there  could  be  nothing  in  the  shape  of  a  charge  upon 
the  living  except  through  the  medium  of  a  sequestration.  When  the 
settlor  had  made  the  voluntary  assignment  of  the  policy,  he  stood  in 
this  position,  that  he  had  literally  nothing  wherewithal  to  pay  or  to 
give  security  for  the  debt  of  £489,  except  the  surplus  value  of  the 


SECT.  I.]  FREEMAN   V.    POPE.  181 

furniture,  which  must  be  taken  to  be  worth  about  .£200,  and  he  was 
clearly  and  completely  insolvent  the  moment  he  had  executed  the  settle- 
ment, even  if  we  assume  that  some  portion  of  his  tithes  and  of  the 
annuity  was  due  to  him.  It  appears  that  a  payment  of  the  tithes  was 
made  in  January,  and  we  cannot  suppose  that  there  was  more  owing  to 
him  than  the  £200  which  was  paid  in  May,  two  months  after  the  date 
of  the  deed  ;  and  if  we  add  to  that  £200  as  the  surplus  value  of  the 
furniture,  and  add  something  for  an  apportioned  part  of  the  annuity, 
the  whole  put  togeiher  would  not  meet  the  £489.  He,  in  truth,  was  at 
that  time  insolvent ;  and  there  I  put  it  more  favorably  than  I  ought  to 
put  it,  because  he  could  not  at  once  put  his  hands  upon  that  sum,  so  as 
to  applj'  it  towards  satisfying  the  debt,  at  an}'  time  between  March  and 
May.  The  case,  therefore,  is  one  of  those  where  an  intention  to  delay 
creditors  is  to  be  assumed  from  the  act. 

The  Vice-Chancellor  seems  to  have  felt  himself  very  much  pressed  by 
the  case  of  Spirett  v.  Willows,  3  D.  J.  &  S.  293,  302,  and  the  dicta  of  Lord 
Westbury  in  that  case.  The  first  of  those  dicta  is :  "  If  the  debt  of 
the  creditor  by  whom  the  voluntary  settlement  is  impeached  existed  at 
the  date  of  the  settlement,  and  it  is  shown  that  the  remedy  of  the 
creditor  is  defeated  or  delayed  by  the  existence  of  the  settlement,  it  is 
immaterial  whether  the  debtor  was  or  was  not  solvent  after  making  the 
settlement." x  The  Vice-Chancellor  seems  to  have  thought  himself 
bound  by  this  expression  of  opinion,  and  to  have  set  aside  the  settle- 
ment upon  that  ground  alone.  It  is  clear,  however,  that  this  expres- 
sion of  opinion  on  the  part  of  the  Lord  Chancellor  was  b}'  no  means 
necessary  for  the  decision  of  the  case  before  him,  where  the  settlor  was 

1  This  dictum  of  Lord  Westbury,  though  supported  by  early  English  cases,  is  incon- 
sistent with  the  language  or  decision  in  many  recent  cases.  Richardson  v.  Smallwood, 
Jac.  552;  Shears  v.  Rogers,  3  B.  &  Ad.  362;  Townsend  v.  Westacott,  2  Beav.  340; 
Jackson  v.  Bowley,  Car.  &  M.  97  ;  Skarf  v.  Soulby,  1  Mac.  &  G.  364 ;  Holmes  v. 
Penney,  3  K.  &  J.  90 ;  Turnley  v.  Hooper,  3  Sm.  &  G.  349 ;  French  v.  French,  6  De 
G.  M.  &  G.  95,  101  ;  Martyn  v.  McNamara,  4  D.  &  War.  (Ir.)  411,  427 ;  Maudere  v. 
Manders,  4  Ir.  Rq.  434. 

And  in  most  States  in  this  country  the  existence  of  indebtedness,  unless  beyond 
what  is  reasonable  with  reference  to  the  settlor's  remaining  property,  is  no  evidence  of 
fraud.  Warren  v.  Moody,  122  U.  S.  132  ;  Adams  v.  Collier,  122  U.  S.  382  ;  Chambers 
v.  Sallie,  29  Ark.  407  ;  Windhams  v.  Bootz,  92  Cal.  617;  Woolridge  v.  Boardman,  115 
Cal.  74;  Salmon  v.  Bennett,  1  Conn.  525  ;  Trumbull  v.  Hewitt,  62  Conn.  448,  451 ; 
Ga.  Code,  §  2695 ;  Cohens  Parish,  105  Ga.  339;  Harting  v.  Jockers,  136111.  627; 
Dillman  »;.  Nadelhoffer,  162  III.  625;  Kmerson  i;.  Opp,  139  I  nil.  27;  Gwyer  t>.  Figgins, 
37  la.  517;  Tyler  v.  Budd,  96  la.  33;  Weeks  v.  Hill,  88  Me.  Ill  ;  Gardiner  Savings 
Inst.  v.  Emerson.  91  Me.  535;  Warner  v.  Dove,  33  Md.  579;  Winchester  v.  Charter, 
102  Mass.  272;  Clark  v.  McMahon,  170  Mass.  91  ;  Blake  v.  Boisjoli,  51  Minn.  296; 
Wilson  v.  Kohlheim,  46  Miss.  346;  Hoffman  v.  Nolte,  127  Mo.  120;  Glacier  v.  Walker, 
69  Mo.  App.  288;  Pomeroy  v.  Bailey,  43  N.  H.  118;  Kain  v.  Larkin,  131  N.  Y.  300, 
141  N.  Y.  144  ;  N  C.  Code  §  1547;  Clement  v.  Cozart,  112  N.  C.  412;  Hamburger  ». 
Grant,  8  Oreg.  181  ;  Crumbaugh  v.  Kugler,  2  Ohio  St.  373;  Dukes  v.  Spangler,  35 
Ohio  St.  119;  Wilson  v.  Howser,  12  Pa.  109;  Clark  v.  Depew,  25  Pa.  509;  Burkey  v. 
Self,  4  Sneed,  121 ;  Nelson  v.  Kinney,  93  Tenn.  428  ;  Panhandle  Nat.  Bank  v.  Foster 
74  Tex.  514;  Carkeek  v.  Boston  Nat.  Bank,  16  Wash.  399;  Second  Nat.  Bank  w 
Merrill.  81  Wis.  142. 


182  EX  PARTE   MERCER.      IN   RE   WISE.  [CHAP.  IV. 

guilt}'  of  a  plain  and  manifest  fraud.  It  is  expressed  in  very  large 
terms,  probably  too  large  ;  but,  at  all  events,  it  is  unnecessary  to  resort 
to  it  in  the  present  case.  It  seems  to  me  that  the  difficulty  felt  b}*  the 
Vice-Chancellor  arose  from  his  thinking  that  it  was  necessary  to  prove 
an  Actual  intention  to  delay  creditors,  where  the  facts  are  such  as  to 
show  that  the  necessary  consequence  of  what  was  done  was  to  delay 
them.  If  we  had  to  decide  the  question  of  actual  intention,  probably 
we  might  conclude  that  the  settlor,  when  be  made  the  settlement,  was 
not  thinking  about  his  creditors  at  all,  but  was  only  thinking  of  the 
lad}r  whom  he  wished  to  benefit ;  and  that  his  whole  mind  being  given 
up  to  considerations  of  generosity  and  kindness  towards  her,  he  forgot 
that  his  creditors  had  higher  claims  upon  him,  and  he  provided  for  her 
without  providing  for  them.  It  makes  no  difference  that  Messrs. 
Gurney,  the  bankers,  seem  to  have  been  willing  to  forego  the  immedi- 
ate payment  of  their  debt ;  the  question  is,  whether  they  could  not  within 
a  month  or  less  after  the  execution  of  the  settlement,  if  the}"  had  been 
so  minded,  have  called  in  the  debt  and  overturned  the  settlement  ? 
Beyond  all  doubt  they  could,  on  the  ground  that  it  did  not  leave  suffi- 
cient property  to  pay  their  debt ;  and  this  being  so,  we  are  not  to  specu- 
late about  what  was  actually  passing  in  his  mind.  I  am  quite  willing 
to  believe  that  he  had  no  deliberate  intention  of  depriving  his  creditors 
of  a  fund  to  which  they  were  entitled,  but  he  did  an  act  which,  in  point 
of  fact,  withdrew  that  fund  from  them,  and  dealt  with  it  by  way  of 
bounty.  That  being  so,  I  come  to  the  conclusion  that  the  decree  of 
the  learned  Vice-Chancellor  is  right.1 


Ex  PARTE  MERCER.     IN  RE  WISE. 
COURT  OP  APPEAL,  MARCH  1-ApRiL  16,   1886. 
[Reported  in  17  Queen's  Bench  Division,  290.] 

APPEAL  from  an  order  of  the  Judge  of  the  Croydon  County  Court, 
by  which  it  was  declared  that  a  post-nuptial  settlement  executed  by  H. 
J.  J.  Wise,  a  bankrupt,  was  fraudulent  and  void  as  against  the  trustee 
in  the  bankruptcy,  and  the  trustee  of  the  settlement  was  ordered  to 
deliver  it  up  to  be  cancelled. 

The  bankrupt  was  a  master  mariner.  In  the  year  1881  he  was 
engaged  to  be  married  to  Miss  Emily  Agnes  Vyse,  but  being  at  Hong 
Kong  in  the  course  of  a  voyage,  he,  on  the  31st  of  May,  1881,  married 
another  lady.  On  the  25th  of  August,  1881,  Miss  Vyse  commenced 
an  action  for  breach  of  promise  against  him  in  the  Queen's  Bench 
Division,  and  on  the  8th  of  October,  1881,  he  was  served  with  the 

1  A  portion  of  Lord  HATHERLEY'S  opinion  relating  to  costs,  and  a  concurring 
opinion  of  Sir  G.  M.  GIFFORD,  L.  J.,  are  omitted. 


SECT.  I.J  EX   PARTE   MERCER.      IN   RE   WISE.  183 

writ  at  Hong  Kong.  He  was  under  the  will  of  his  stepfather  entitled 
to  a  legacy  of  £500,  subject  lo  a  life  interest  given  to  his  mother.  His 
mother  died  on  the  llth  of  May,  1881,  and  thereupon  the  legacy  vested 
in  the  bankrupt  in  possession.  The  money  was  in  the  hands  of  W.  P. 
Brown,  the  executor  of  the  will.  On  the  17th  of  October,  1881,  the 
bankrupt  executed  at  Hong  Kong,  where  he  then  was,  a  voluntary 
settlement  of  this  legacy,  whereby  he  assigned  the  legacy  to  Brown,  on 
trust  to  invest  the  same,  and  to  pay  the  income  thereof,  during  the 
joint  lives  of  Wise  and  his  wife,  to  the  wife  for  her  separate  use  with- 
out power  of  anticipation,  and,  after  the  death  of  such  one  of  Wise 
and  his  wife  as  should  first  die,  to  pay  the  income  to  the  survivor 
during  his  or  her  life,  and  after  the  death  of  the  survivor,  Brown  was 
to  stand  possessed  of  the  trust  fund  in  trust  for  the  children  of  the 
marriage  as  therein  mentioned,  and,  in  default  of  children,  in  trust  for 
Wise  absolutely.  On  the  20th  of  July,  1882,  Miss  Vyse  obtained  judg- 
ment in  the  breach  of  promise  action  for  £500  damages  and  costs. 
On  the  14th  of  November,  1884,  Wise  was  adjudicated  a  bankrupt. 

The  bankrupt  made  an  affidavit  in  the  county  court,  in  which  he 
stated  that  at  the  time  of  the  execution  of  the  settlement  he  was 
perfectly  solvent  and  able  to  pay  his  debts  without  the  aid  of  the 
property  comprised  in  the  settlement. 

After  the  order  had  been  made  by  the  county  court  judge,  the  bank- 
rupt made  a  further  affidavit,  and  an  affidavit  was  made  by  Brown, 
and  these  affidavits  were  used  on  the  hearing  of  the  appeal  by  the 
Divisional  Court.  The  bankrupt  in  his  further  affidavit  said  that  he 
was  not  aware  that  he  was  entitled  to  the  legacy  until  he  received  at 
Hong  Kong  between  the  12th  and  16th  of  October,  1881,  a  letter  from 
Brown  informing  him  of  it.  When  he  married  he  was  not  aware  that 
he  had  any  property  to  settle.  Immediately  he  received  notice  of 
the  legacy  being  due  to  him,  he  instructed  some  solicitors  at  Hong 
Kong  to  prepare  the  settlement.  He  said  that  the  writ  which  had  been 
served  on  him  in  the  breach  of  promise  action  had  no  influence  in 
inducing  him  to  make  the  settlement,  as  he  considered  the  writ  was 
merely  a  threat,  and  that  he  should  hear  nothing  more  about  the  action. 
When  he  received  the  intimation  of  the  legacy  he  told  his  wife  that  he 
should  settle  it  on  her,  as  it  was  the  only  money  she  would  have  in 
case  of  his  death.  She  did  not  suggest  to,  or  request,  or  influence  him 
in  any  way  in  making  the  settlement,  but  it  was  made  solely  as  a  pro- 
vision for  his  wife  or  any  children  they  might  have  in  case  of  his  death, 
and,  had  he  known  before  his  marriage  that  he  was  entitled  to  the 
legacy,  he  should  certainly  have  settled  it  before  his  marriage.  He 
was  not  cross-examined  on  this  affidavit. 

Mrs.  Wise  and  Brown  appealed  from  the  order  of  the  county  court. 

The  Divisional  Court  sustained  the  appeal;  and  the  trustee  in 
bankruptcy  appealed. 

W.  If.  Lynden  Sell  (Morgan  Howard,  Q.  C.,  with  him)i  for  the 
appellant. 


184  EX    PARTE   MERCER.      IN   RE   WISE.  [CHAP.  IV. 

H.  D.  Greene,  Q.  C.,  and  F.  Cooper  Willis,  for  Mrs.  Wise  and  the 
trustees  of  the  settlement,  were  not  heard. 

LORD  ESHER,  M.  R.  I  think  the  lecision  of  the  Divisional  Court 
was  right. 

The  argument  was  first  put  in  this  way :  It  is  necessary  to  prove 
that  the  bankrupt,  at  the  date  of^the  voluntary  settlement,  intended  to 
defeat  and  delay  a  creditor  or  his  creditors  generally  ;  the  necessary 
consequence  of  what  he  did  was  to  defeat  and  delay  his  creditors ; 
and  therefore,  as  a  proposition  of  law,  the  tribunal  which  had  to 
consider  whether  he  did  intend  to  defeat  and  delay  his  creditors  was 
bound  to  find  that  he  did.  In  support  of  that  proposition  dicta  of 
great  and  eminent  judges  were  cited.  I  will  venture  to  say  as  strongly 
as  I  can  that  to  mind  that  proposition  is  monstrous.  It  is  said  that  it 
is  a  necessary  inference  that  a  man  intends  the  natural  and  necessary 
result  of  his  acts.  If  you  want  to  find  out  the  intention  in  a  man's 
mind,  of  course  you  cannot  look  into  his  mind,  but,  if  circumstances 
are  proved  from  which  you  believe  that  he  had  a  particular  intention, 
you  infer  as  a  matter  of  fact  that  he  had  that  intention.  No  doubt,  in 
coming  to  a  particular  conclusion  as  to  the  intention  in  a  man's  mind, 
you  should  take  into  account  the  necessary  result  of  the  acts  which  he 
has  done.  I  do  not  use  the  words  u  necessary  result "  metaphysically, 
but  in  their  ordinary  business  sense,  and  of  course,  if  there  was 
nothing  to  the  contrary,  you  would  come  to  .the  conclusion  that  the 
man  did  intend  the  necessary  result  of  his  acts.  But,  if  other  circum- 
stances make  3-ou  believe  that  the  man  did  not  intend  to  do  that  which 
you  are  asked  to  find  that  he  did  intend,  to  sa\-  that,  because  that  was 
the  necessary  result  of  what  he  did,  you  must  find,  contrary  to  the 
other  evidence,  that  he  did  actually  intend  to  do  it,  is  to  ask  one  to 
find  that  to  be  a  fact  which  one  really  believes  to  be  untrue  in  fact. 
Whether  the  fact  that  the  necessa^-  effect  of  a  voluntary  deed  is  to 
defeat  or  delay  the  creditors  of  the  grantor  will  make  the  deed  void 
under  the  statute  of  Elizabeth,  although  there  was  no  such  intent  in  his 
mind  at  the  time  when  he  executed  it,  is  a  question  which  we  are  not 
now  called  upon  to  decide.  But  that  is  a  question  wholly  independent 
of  the  question  of  intention.  That  may  be  the  law ;  the  courts  may 
have  put  that  construction  on  the  statute.  But  that  is  a  different  prop- 
osition from  that  which  was  put  forward  in  argument,  and  I  will  not 
undertake  to  decide  it  now.  It  must  be  recollected  that  the  statute  of 
Elizabeth  applies,  and  may  make  a  deed  void,  even  though  the  grantor 
never  becomes  a  bankrupt.  But  this  case  was  at  first  argued,  not 
upon  that  footing,  but  upon  the  assumption  that,  if  the  natural  or 
necessary  effect  of  what  the  settlor  did  was  to  defeat  or  delay  his 
creditors,  the  court  must  find  that  he  actuall}'  had  that  intent.  That 
proposition  or  doctrine  I  entirely  abjure. 

We  must  look  at  all  the  facts  of  this  case.  The  bankrupt  was  a 
captain  of  a  merchant  ship,  and  there  is  no  evidence  whether  his 
employment  ceased  at  the  end  of  every  voyage,  or  whether  it  was  a 


SECT.  I.]  EX   PARTE   MERCER.      IN   RE   WISE.  185 

constant  employment.  He  had  promised  to  marry  Miss  Vyse.  Then 
he  went  to  Hong  Kong,  and  there  he  married  another  lady,  and  so  laid 
himself  open  to  an  action  for  breach  of  promise  of  marriage  by  Miss 
Vyse.  That  action  having  been  brought,  might,  so  far  as  any  one 
could  foretell,  have  resulted  in  a  verdict  either  for  Is.  or  for  £500 
damages ;  no  one  could  tell  what  the  result  would  be.  Well,  he 
married  the  lady  in  Hong  Kong  in  Ma}-,  and  in  October  there  came  out 
to  him,  by  the  same  post  from  England,  the  information  that  he  had 
become  entitled  to  a  legacy  of  £500,  and  also  the  information  that  Miss 
Vyse  had  brought  an  action  against  him  for  breach  of  promise  ol 
marriage.  This  was  the  first  time  that  he  had  had  any  intimation  of 
the  fact  that  he  had  any  realized  fortune,  and  he  immediately  settled 
the  £500  upon  his  wife  and  children. 

Now,  what  was  his  position  at  that  time?  According  to  his 
evidence,  which  is  not  disputed  (for  he  has  not  been  cross-examined* 
on  his  affidavit),  he  did  not  owe  a  shilling  in  the  world.  There  is  no 
evidence  that  he  had  not  money  owing  to  him  for  wages,  and  in  all 
probability  he  had,  because,  if  his  voyage  did  not  terminate  at  Hong 
Kong  (and  there  is  no  evidence  that  it  did),  if  he  had  got  to  take  his 
ship  home  to  England,  in  all  probability  his  wages  were  not  payable 
until  the  end  of  the  voyage.  If  so,  he  would  have  means  to  that  extent 
and  he  did  not  owe  a  shilling. 

Now  with  regard  to  the  action,  how  could  any  one  —  how  could  his 
legal  adviser  —  have  told  him  what  the  amount  of  the  verdict  was 
likely  to  be?  If  the  verdict  had  been  for  £50,  and  he  had.  had  £50 
coming  to  him  at  the  end  of  his  voyage,  he  would  have  been  able  to  pay 
it,  and  on  another  occasion  he  would  have  been  able  to  pa}'  the  costs. 
It  was  entirely  a  matter  of  speculation  what  the  amount  of  the  verdict 
would  be.  Therefore  he  was  not  insolvent ;  it  was  not  the  necessary 
consequence  of  what  he  did  to  defeat  or  delay  the  plaintiff  in  the 
action,  for,  if  the  verdict  had  been  for  a  small  amount,  she  would  not 
necessarily  have  been  delayed  for  a  week. 

In  order  to  make  this  deed  void  under  the  statute  of  Elizabeth 
(however  far. that  statute  may  be  stretched),  we  are  bound  in  the 
present  case  to  find  that  there  was  an  actual  intent  in  the  bankrupt's 
mind  to  defeat  or  delay  his  creditors,  and  there  is  no  evidence  of  such 
an  intent.  He  has  sworn  that  he  was  not  thinking  of  his  creditors. 
The  only  creditor  that  it  is  suggested  he  had  to  think  about  was  Miss 
Vyse,  and  no  one  could  tell  what  the  verdict  in  her  action  would  be. 
But  what  happened  afterwards?  It  is  obvious  that,  when  the  action 
came  on  for  trial,  evidence  must  have  been  given  about  this  £500 
legacy  to  which  the  defendatit  was  entitled,  and  the  jury  took  the 
vindictive  view  of  the  plaintiff,  and  gave  her  as  damages  the  whole  of 
the  defendant's  realized  property.  It  was  a  startling  verdict,  which  I 
certainly  should  not  have  anticipated,  and  I  do  not  see  why  he  was 
bound  to  anticipate  it.  When  you  have  got  those  facts,  and  you  are 
asked  to  conclude  that  the  bankrupt  actually  intended  to  defeat  Miss 


186  EX   PARTE   MERCER.      IN   RE   WISE.  [CHAP.  IV. 

Vyse's  claim,  it  seems  to  me  that  the  Divisional  Court  were  perfectly 
justified  in  declining  to  find  that  he  had  any  such  intent.  Upon  the 
facts,  I  cannot  find  that  there  was  such  an  intent. 

The  appeal  must  be  dismissed. 

LINDLEY,  L.  J.  The  evidence  before  the  county  court  judge  differed 
materially  from  that  which  was  before  the  Divisional  Court,  and  I  am 
not  surprised  at  the  view  which  lie  took  of  the  case.  Unexplained,  the 
circumstances  had  a  very  suspicious  appearance.  But  the  affidavits 
which  have  been  filed  since  the  hearing  in  the  county  court  give  a 
totally  different  complexion  to  the  transaction,  and  it  was  upon  those 
affidavits  that  the  Divisional  Court  took  the  view  contrary  to  that 
which  had  been  taken  by  the  county  court  judge.  Now  we  have  all  the 
facts  before  us,  and  we  must  apply  the  law  to  those  facts,  There  is  a 
voluntary  settlement  made  by  a  man  who  had  not  a  farthing  of  debts, 
But  against  whom  an  action  had  been  commenced  for  breach  of  promise 
of  marriage.  At  the  time  when  he  made  the  settlement  a  sum  of  £500 
had  just  accrued  to  him,  and  he  settled  it  upon  his  wife  and  children. 
He  tells  us,  and  the  Divisional  Court  believed  him,  and  I  also  believe 
that  he  was  speaking  the  truth,  that  he  thought  the  action  for  breach 
of  promise  would  come  to  nothing.  At  all  events,  the  result  of  it  was 
in  the  highest  degree  speculative ;  he  was  not  tuen  indebted  to  the 
plaintiff,  but  she  had  made  a  claim  against  him  which  might  or  might 
not  result  in  damages.  We  have,  therefore,  to  deal  with  the  case  of 
an  honest  man,  not  in  fact  indebted  at  all,  and  the  question  is,  whether 
we  are  driven  (not  by  the  statute  of  Elizabeth,  but  b}-  a  series  of 
decisions  upon  it)  to  say  that  the  settlement  cannot  stand.  I  do  not 
think  we  are.  Jt  is  true  that  voluntary  settlements  have  been  set  aside 
under  the  statute,  as  it  has  been  construed  for  a  great  number  of  3~ears, 
in  cases  in  which  there  was  no  actual  intention  to  defraud.  It  has 
been  held  to  be  sufficient  if,  when  the  settlement  is  executed,  the  cir- 
cumstances are  such  that  it  must  have  that  effect.  But  the  language 
which  has  been  used  in  a  great  many  cases,  that  a  man  must  in  point 
of  law  be  held  to  have  intended  the  necessary  consequences  of  his  own 
acts,  is  apt  to  mislead,  by  confusing  the  boundary  between  law  and 
fact,  and  by  consequences  which  can  be  foreseen  with  those  which 
cannot.  But  although  I  am  not  prepared  to  say  that  a  voluntary 
settlement  can  never  be  set  aside  under  the  statute  of  Elizabeth,  as  it 
has  been  construed,  unless  there  has  been  in  fact  an  intention  to 
defraud,  I  am  not  aware  of  any  decision  which  goes  the  length  of 
upsetting  the  present  deed  under  the  circumstances  with  which  we 
have  to  deal.  In  this  case  there  was  no  intention  to  defeat  the  plain- 
tiff, and,  when  the  settlement  was  executed,  the  probability  of  the 
plaintiff  obtaining  substantial  damages  was  very  slight.  The  case  is 
certainly  not  within  the  language  of  the  statute.  I  have  no  doubt  that 
the  view  taken  by  the  Divisional  Court  was  right. 

I  should  add  that  I  have  looked  at  §  47  of  the  Bankruptcy  Act, 
1883,  and  it  is  quite  clear  that  it  does  not  apply. 


SECT.  L]  EX   PARTE   MERCER.      IN   RE   WISE.  187 

LOPES,  L.  J.  We  need  only  consider  the  law  so  far  as  it  applies  to 
the  facts  of  the  present  case.  It  has  been  argued  that,  if  the  neces- 
sary effect  of 'a  voluntary  settlement  is  to  defeat  or  hinder  creditors, 
the  court  is  bound  to  infer  such  an  intent,  whether  it  did  or  did  not  in 
fact  exist.  I  will  express  no  opinion  upon  that  matter,  because  it  i? 
not  necessary  for  the  purpose  of  deciding  the  present  case.  It  cannot, 
according  to  my  view,  be  said  that  it  was  the  necessaiy  consequence  of 
this  voluntary  settlement  to  defeat  or  hinder  the  settlor's  creditors. 
The  only  suggested  creditor  is  Miss  Vyse.  There  are  many  reasons 
why  it  was  not  a  necessary  consequence  of  the  settlement  that  her 
claim  should  be  defeated.  The  action  might  have  failed  for  various 
reasons ;  the  plaintiff  might  not  have  been  willing  to  pursue  it ;  it 
might  have  resulted  in  a  verdict  for  the  defendant,  or  in  a  verdict  for 
the  plaintiff  with  very  small  damages.  There  are  many  other  ways  in 
which  the  action  might  have  terminated,  without  its  resulting  in  a 
verdict  for  £500.  It  seems  to  me,  therefore,  that  it  cannot  be  said 
that  the  necessary  effect  of  the  settlement  was  to  defeat  or  hinder 
Miss  Vyse. 

What,  then,  is  the  question  in  this  case?  The  question  which  I 
should  have  left  to  the  jury  is  this :  Whether,  having  regard  to  all  the 
circumstances,  the  settlor  intended  to  defeat  or  hinder  his  creditors? 
That  is  a  question  of  fact  which  can  only  be  determined  by  the 
evidence.  Before  the  county  court  judge  there  was  only  one  affidavit, 
and  he  came  to  a  conclusion  at  which  I  am  not  at  all  surprised.  Before 
the  Divisional  Court  there  were  several  other  affidavits,  and  they 
arrived  at  a  different  conclusion,  with  which  I  entirely  agree.  1  adopt 
the  words  of  CAVE,  J.,  when  he  sa\-s,  "  Looking  at  the  facts  which  are 
established  by  the  affidavits,  it  appears  to  me  reasonably  clear  that  the 
settlor  had  no  intention  whatever  of  defrauding  his  creditors,  and  that 
he  had  not  got  Miss  Vyse  and  her  claim  in  his  mind  when  he  made  the 
settlement."  I  entirely  agree  with  that  conclusion,  and  I  think  the 
decision  of  the  Divisional  Court  was  right.1 

1  A  person  having  an  unliquidated  claim  is  a  creditor  within  the  statute  of 
Elizabeth. 

Breach  of  promise  to  marry.  Beam  v.  Bennett,  51  Mich.  148;  McVeigh  v. 
Ritenour,  40  Ohio  St.  107;  Shoutz  v.  Brown,  27  Pa.  123;  Hoffman  v.  Junk,  51 
Wis.  613. 

Alimony  and  separate  support.  Blenkinsopp  v.  Blenkinsopp,  1  De  G.  M.  &  G.  495  ; 
Hinds  v.  Hinds,  80  Ala.  225;  Tyler  v.  Tyler,  126  111.  525;  Picket  v.  Garrison,  76  la. 
347  ;  Livermore  v.  Boutelle,  11  Gray,  267;  Chase  v.  Chase,  105  Mass.  385;  Fiske  v. 
Fiske,  173  Mass.  413,  417;  Morrison  v.  Morrison,  49  N.  II.  69;  Green  v.  Adams,  59 
Vt.  602.  See  also  Plunkettr.  Plunkett,  114  Ind.  484;  Browne!!  v.  Briggs,  173  Mass. 
529;  Verner  v.  Verner,  64  Miss.  184. 

Right  of  action  for  tort.  Barling  v.  Bishopp,  29  Beav.  417  ;  Crossley  v.  Elworthy, 
L.  It.  12  Eq.  158;  Westmoreland  v.  Powell,  59  Ga.  256;  Bongard  v.  Block,  81  111. 
186;  Anglo-American  Co.  v.  Baier,  31  111.  App.  653;  Ilunsinger  v.  Hofer,  110  Ind. 
390 ;  Petree  v.  Brothcrton,  133  Ind.  692 ;  Carbiener  v.  Montgomery,  97  la.  659 ; 
Schuster  v.  Stout,  30  Kan.  529 ;  Tobie  Mfg.  Co.  v.  Waldron,  75  Me.  472 ;  Welde  v. 
Scotten,  59  Md.  72  ;  Clapp  v.  L<3atherbee.  18  Pich.  131 ;  Schaiblo  v.  Ardner,  98  Mich. 
70 ;  Post  v.  Stiger,  39  N.  J.  Eq.  554  ;  Thorp  v.  Leibrecht,  56  N.  J.  Eq.  499 ;  Munson 


188  EX   PARTE   MERCER.      IN   RE   WISE.  [CHAP.  IV. 

«;.  Geuesee  Works,  37  N.  Y.  App.  Div.  205;  McKenna  v.  Crowley,  16  R.  I.  364 
Farnsworth  v.  Bell,  5  Sneed,  531 ;  Cole  v.  Terrell,  71  Tex.  549;  Harris  v.  Harris's  Ex. 
23  Gratt,  737,  764.  See  also  Leonard  v.  Bolton,  153  Mass.  428;  Pierstoff  v.  Jorges,  86 
Wis.  128.  Contrary  decisions  are  Fox  v.  Hills,  1  Conu.  294,  299  ;  Fowler  v.  Frisbie, 
3  Conn.  320;  Hill  v.  Bowman,  35  Mich.  191  (overruled  by  Schaible  v.  Ardner,  98 
Mich.  70) ;  Evans  v.  Lewis,  30  Ohio  St.  11 ;  White  v.  Gates,  42  Ohio  St.  109,  112; 
Green  v.  Adams,  59  Vt.  602,  611.  In  Sanders  v.  Logue,  88  Tenii.  355,  360,  the 
court  say :  — 

"  It  appears  from  this  statement  of  facts,  that  Sanders  neither  had  any  recovery 
for  the  fraud  alleged  to  have  been  committed  in  taking  his  money  upon  false  repre- 
sentation as  to  title,  nor  did  he  have  any  action  pending  therefor  when  these  convey- 
ances were  made ;  but  that,  instead,  he  was  the  judgment  debtor  of  Logue  in  a  decree 
in  nowise  complained  of.  But  he  insists  that,  inasmuch  as  he  had  a  right  of  action 
for  the  money  received  of  him  in  consequence  of  the  fraudulent  representations  of 
Logue,  his  was  an  existing  demand  at  the  time,  and  such  a  one  as  must  be  con- 
sidered in  determining  the  validity  of  the  conveyances.  It  is,  of  course,  true  that  a 
conveyance  of  property  to  defeat  an  expected  recovery  in  an  action  of  tort  already 
commenced  is  fraudulent  in  fact  and  void.  Belli;.  Farnsworth,  5  Sneed,  531,  532; 
Patrick  v.  Ford,  5  Sneed,  531,  532. 

"  And  we  may  add  that  we  think  it  equally  clear  that  a  voluntary  conveyance 
pending  an  action  of  tort,  whether  actually  intended  to  defeat  it  or  not,  would  be 
void,  if,  upon  estimating  the  amount  of  property  retained,  there  was  a  deficiency  to 
pay  the  amount  claimed.  It  may  be  true,  also,  that  a  conveyance  for  the  fraudulent 
purpose  of  defeating  a  recovery  in  an  action  of  tort  anticipated  would  be  void.  But, 
as  we  have  said,  we  are  not  now  dealing  with  any  question  of  actual  fraud.  We  are 
discussing  the  question  whether  a  deed  made  in  good  faith,  in  the  absence  of  any 
debt  known  or  asserted,  makes  a  deed  fraudulent  in  law,  aud  we  have  no  hesitation  in 
holding  that  it  does  not. 

"  In  the  case  we  are  now  considering,  whether  we  treat  the  complainant  as  repudi- 
ating his  contract  because  he  was  fraudulently  induced  to  make  it,  and  suing  for  the 
money  as  for  money  had  and  received  to  his  use,  or  whether  we  treat  the  action  as 
one  for  damages  incurred  in  consequence  of  the  fraud  and  deceit  practised  upon  him, 
measured  by  the  money  paid  and  interest,  the  result  is  the  same.  In  the  first  aspect, 
he  would  have  had  no  action  until  he  disaffirmed  the  trade  and  demanded  his  money 
(Arendale  v.  Morgan,  6  Sneed,  703) ;  and  in  the  second  his  action  would  have  been 
ex  de/icto,  and  not  upon  a  specific,  fixed,  or  asserted  liability  within  the  meaning  of 
the  rule  stated  in  respect  to  voluntary  conveyances.  Such  a  claim,  it  is  obvious, 
might  or  might  not  ever  be  asserted,  and  it  is  too  uncertain  and  remote  to  be  taken 
into  consideration  in  estimating  the  debts  or  liabilities  of  a  debtor  for  which  he  must 
provide  by  retention  of  property.  This  is  made  obvious  if  we  look  at  the  state  of 
affairs  then  existing,  not  as  now  developed." 

In  Crossley  v.  Elworthy,  L.  R.  12  Eq.  158,  168,  MALINS,  V.  C.,  said  :  — 

"  This  brings  me  to  a  part  of  the  case  on  which  much  has  been  said  on  both  sides ; 
namely,  whether  the  debt  of  Mr.  Crossley,  of  £15,000,  as  proved  in  the  action,  can  be 
taken  into  consideration.  I  am  clearly  of  opinion  that  Mr.  Glasse  was  right  in  saying 
that  it  was  not  necessary  for  him  to  rely  upon  that  in  order  to  invalidate  the  settle- 
ment. But  I  cannot  bring  myself  to  the  conclusion  that  the  liability  to  Mr.  Crossley 
can  be  wholly  disregarded.  I  must,  as  I  am  bound  by  the  verdict  of  the  jury  to  do, 
attribute  to  Mr.  Elworthy  the  knowledge  that  he  had  made  erroneous  statements  to 
Mr.  Crossley  in  1865,  and  those  erroneous  statements  made  him  liable  for  a  debt 
which  he  did  not  calculate  upon  when  he  executed  the  settlement,  for  he  did  not 
know  till  1867  that  the  action  would  be  brought.  But  the  result  of  the  action  was  to 
prove  him  to  have  become  indebted  in  1865,  when  he  made  the  false  representations 
by  which  the  liability  was  created.  I  do  not  say  that  the  debt  would  have  been 
sufficient  of  itself  to  invalidate  the  settlement,  but  it  was  a  circumstance  which,  con- 
sidering the  way  he  was  involved  in  transactions  with  this  company,  ought  to  have  led 
him  to  pause." 


SECT.  I.]  SEVERS   V.   DODSON.  189 


SEVERS  v.  DODSON. 

NEW  JERSEY  COURT  OF  ERRORS  AND  APPEALS,  NOVEMBER  TERM,  1895. 
[Reported  in  53  New  Jersey  Equity,  633.] 

BEASLEY,  C.  J.  This  bill  was  filed  by  the  respondents,  as  creditors 
at  large,  to  set  aside  a  conveyance  made  by  their  debtor  to  his  grand- 
daughter. 

The  grounds  taken  before  the  Vice-Chancellor,  on  the  part  of  such 
complainants,  was  that  the  transfer  of  the  property  was  in  pursuance 
of  a  scheme  to  defraud  and  delay  creditors,  or,  failing  in  that  conten- 
tion, it  was  insisted  that  the  conveyance  was,  at  all  events,  without 
consideration,  and  was,  therefore,  constructively  fraudulent  as  against 
existing  debts,  to  which  class  it  was  alleged  the  claim  sought  to  be 
enforced  belonged. 

63-  way  of  answering  these  grounds,  the  defendants  contended  that 
there  was  no  fraud  ;  that  the  conveyance  was  not  voluntary,  and  that 
if  the  transaction  was  a  mere  gift,  nevertheless  it  was  equitable  and 
legal,  inasmuch  as  it  was  not  an  arrangement  hostile  to  creditors. 

The  Vice-Chancellor's  consideration  of  the  facts  led  him  to  the  conclu- 
sions that  the  deed  was  voluntary  and  that  there  was  no  actual  fraud 
in  the  affair,  but  that,  as  the  debt  in  question  was  in  existence  at  the 
time  of  the  gift,  such  conveyance  should  be  annulled  in  accordance  with 
the  rule  established  in  the  case  of  Haston  v.  Castner,  4  Stew.  Eq.  703. 

The  result  was  a  decree  setting  aside  the  conveyance  and  ordering 
the  land  to  be  sold,  the  proceeds  to  be  applied  to  the  payment  of  the 
debt  due  the  complainants,  the  amount  of  which  was  ascertained  by  the 
court. 

With  respect  to  the  facts  that  the  conveyance  was  purely  voluntary, 
and  that  it  was  not  tainted  with  fraud,  the  opinion  of  this  court  is  in 
all  respects  in  accord  with  that  of  the  Vice-Chancellor.  This  part  of  the 
case  is  deemed  so  plain  as  to  render  all  discussion  of  the  subject  utterly 
superfluous,  but  we  think  that  the  other  essential  fact,  viz.,  that  the 
complainants  were  creditors  at  the  time  of  the  transfer  of  the  property, 
so  far  from  being  proved,  was  negatived  by  the  evidence. 

On  this  subject,  the  uncontested  facts  were  these :  The  deed  of  gift 
was  dated  the  3d  day  of  April,  1886,  and  at  that  time  the  donor,  one 
James  Taylor,  was  the  accommodation  indorser  for  one  Davis,  who  was 
in  debt  to  the  complainants.  From  time  to  time  these  notes  were 
renewed  as  they  fell  due,  the  old  ones  being  regularly  taken  up  and 
new  ones  substituted.  None  of  this  paper  was  dishonored  before  the 
making  of  the  conveyance  in  question,  the  first  of  them  being  protested 
about  a  year  after  that  event. 

The  inquiry  therefore  arises,  whether  this  situation  placed  this  case 
within  the  operation  of  the  rule  defined  in  Haston  v.  Castner,  already 
cited.  The  doctrine  propounded  in  that  authority  is  this :  that  if  a 


190  SEVERS  V.  DODSON.  [CHAP.  IV. 

person  be  indebted  to  another  at  the  time  of  a  voluntary  settlement 
made  by  him,  such  disposition  is  presumed  to  be  fraudulent  with  respect 
to  such  debt,  and  no  circumstances  will  suffice  to  repel  the  legal  pre- 
sumption of  fraud. 

This  doctrine,  after  full  consideration,  was  established  by  this  court, 
and  it  is  not  intended,  on  this  occasion,  to  modify  it  in  any  degree.  It 
is  true  that  the  propriety  of  this  principle  has  been  much  discussed  and 
much  doubted,  both  in  England  and  in  this  country,  and  such  investi- 
gation has  exhibited  great  contrariety  in  judicial  opinion,  but,  as  the 
question  is  not  deemed  to  be  an  open  one  in  this  State,  it  would  be  but 
to  supererogate  to  review  that  line  of  authorities. 

Accepting,  then,  as  a  datum,  that  the  gift  now  in  question  is  void  as 
respects  cotemporaneous  creditors,  the  only  interrogatory  here  apposite 
is,  did  the  complainants  belong  to  such  class  ? 

-This  question,  we  think,  must  be  answered  in  the  negative.  At  the 
time  in  question  they  were  not  creditors  of  the  donor.  It  is  readily 
admitted  that  they  were  such  in  a  sense  that  entitled  them  to  the  reme- 
dies provided  in  the  act  for  the  prevention  of  frauds  and  perjuries. 
They  can,  undoubtedly,  set  aside  conveyances  and  transfers  of  property 
made  to  defeat  their  just  claims.  But  at  present  we  are  not  called  upon 
to  construe  the  statute  itself,  our  present  function  being  to  construe  the 
rule  of  evidence  that  this  court  has  superinduced  upon  the  statute. 
This  discrimination  has  not  always  been  made,  and  the  omission  has 
confused  the  subject.  The  act  invalidates  certain  transfers  of  property 
infected  with  fraud.  The  rule  now  being  considered  relates  to  the  proof 
of  such  fraud,  declaring  that  the  cotemporaneousness  of  the  gift  and  the 
debt  establishes  it  for  certain  purposes  and  to  a  definite  extent. 

We  have  said  the  complainants'  case  does  not  fall  within  this  eviden- 
tial rule,  the  reason  being  that  they  were  not  creditors  of  the  donor. 
The  latter  was  an  accommodation  indorser  of  current  notes,  and  the 
situation  did  not  constitute  him  a  debtor.  His  assumptions  might  not 
have  ripened  into  debts ;  whether  they  would  have  that  effect  was  alto- 
gether contingent.  It  is  obvious  that  to  bring  this  case  within  the 
principle  in  question  it  is  necessarj^  to  amplify,  ver}"  greatly,  its  scope, 
for  its  terms  "  existing  debts  "  would  have  to  be  metamorphosed  into 
"  existing  liabilities."  Such  a  change  would  be  so  fundamental  as  to 
deprive  the  principle  itself  of  all  semblance  of  reason  or  expediency. 
When  a  man  is  in  debt,  especially  if  such  debts  be  due,  it  is  certainly 
not  irrational  to  infer,  if  he  give  awaj*  his  property,  that  the  intention 
was  to  defeat  such  claims,  but  such  deduction  would  seem  to  be  most 
extravagant  if,  instead  of  a  present  indebtedness,  he  has  incurred  a 
mere  liability  as  a  warrantor  of  title,  as  a  tort-feasor,  or  as  suret}'  on 
an  administrator's  bond.1  If  such  responsibilities  as  these  latter,  which 

1  In  Thorp  v.  Leibrecht,  56  N.  J.  Eq.  499,  504,  PITNEY,  V.  C.,  said  :  — 
"  This  classification  —  counsel  contend  —  puts  a  tort-feasor,  i.  e,,  one  who  has  al- 
ready committed  a  tort  upon  which  no  judgment  has  been  recovered,  in  the  same 
category  as  mere  sureties  whose  principals  have  not  yet  made  default,  and  may  never 


SECT.  L]  SEVERS   V.   DODSON.  191 

may,  in  the  long  run,  be  transformed  into  debts,  should  have  the  effect 
of  invalidating  voluntary  settlements  of  property,  then  such  settlements 
would  be  the  most  uncertain  of  legal  transactions.  It  is  plain  that  by 
force  of  so  absurd  a  principle  all  donations  would,  in  a  measure,  be 
made  contingent,  and  would  many  times  remain  so  beyond  the  lives  of 
the  donor  and  donee. 

The  result,  therefore,  is  that  in  order  to  bring  a  case  within  the 
operation  of  the  rule  in  question,  there  must  be  a  present  indebtedness, 
and  not  a  mere  probability  of  future  indebtedness. 

The  question  thus  considered  and  disposed  of  has  never  heretofore 
been  presented  to  the  courts  of  this  State  for  decision.  There  are, 
indeed,  cases  that  approach  it  but  do  not  embrace  it.  What  are  "  ex- 
isting debts "  within  the  meaning  of  the  statute  of  frauds  has  been 
several  times  subjudice,  but  what  are  existing  debts  within  the  rule  of 
evidence  above  defined,  has  never  before  been  adjudged.  It  will  be 
observed  that  it  has  been  already  stated  that,  with  respect  to  the  statute 
most  present  liabilities  are  under  its  protection  against  conve3'ances 
that  are  actually  fraudulent,  but  that  it  is  only  debts,  in  the  strictest 
terms,  to  which  the  judicial  rule  that,  with  respect  to  them,  a  voluntary 
transfer  of  property  shall  be  void  whether  such  transfers  be  fraudulent 
or  not,  is  applicable.  It  is  the  former  of  these  principles  that  has  alone 
been  illustrated  in  our  decisions.  Thus,  in  Cook  v.  Johnson,  1  Beas. 
52,  the  plain  case  was  presented  of  an  indorser  of  a  dishonored  note 
being  deemed  a  debtor  after  protest.  Phelps  v.  Morrison,  9  C.  E.  Gr. 
196  ;  Schmidt  v.  Opie,  6  Stew.  Eq.  138  ;  Post  v.  Siger,  2  Stew.  Eq.  554, 
are  all  cases  in  which  fraud  in  fact  existed,  and  were  each  decided  on 
that  basis.  The  judicial  expressions  used  on  these  occasions  are  to  be 
received  as  authority  only  to  the  extent  that  they  regulate  the  class  of 
facts  to  which  they  are  applied.  All  that  is  decided  is  that  a  contin- 
gent liability,  as  that  of  an  accommodation  indorser,  will  lay  a  ground 
for  a  proceeding  under  the  statute  to  set  aside  any  transfer  of  property 

do  so  (and  hence  the  principals  are  under  no  present  liability),  or  guarantors  against 
contingencies  which  may  never  happen. 

"  With  great  deference  to  the  high  authority  of  the  distinguished  jurist  who  used 
this  language,  I  think  it  plainly  erroneous  and  feel  constrained  not  to  follow  it  or  .apply 
it  here,  for  several  reasons.  In  the  first  place,  the  case  of  a  tort-feasor  who  has  made 
himself  liable  for  damages  actually  suffered  and  capable  of  measurement  in  money, 
is  clearly  distinguishable  from  that  of  a  surety  whose  principal  has  not  made  and 
may  never  make  default.  In  the  one  the  right  of  action  is  vested  and  in  the  other 
it  is  not.  In  the  second  place,  the  language  is  a  merely  illustrative  dictum  upon  a 
topic  not  under  consideration  by  the  court  and  not  necessary  for  the  decision  of  the 
cause  in  hand,  and  there  is  no  evidence  or  reason  founded  in  our  knowledge  of  the 
mode  of  disposing  of  business  by  the  court  of  errors  and  appeals  to  believe  that  it 
attracted  the  attention  and  received  the  approbation  of  a  majority  of  that  court. 
In  the  third  place,  it  was  used  in  the  discussion  of  a  rule  of  evidence  and  not  of 
law  or  equity.  The  question  was  as  to  whether  a  voluntary  settlement  was  to  be 
conclusively  presumed  to  be  fraudulent  and  void  as  against  a  subsequent  judgment 
founded  upon  a  contract  of  suretyship  existing  prior  to  the  settlement,  but  whert 
there  had  been  at  its  date  no  default  by  the  principal  debtor." 


192  SEVERS   V.   DODSON.  [CHAP.  IV. 

made  in  fraud  of  the  bolder  of  the  claim.  None  of  them  decide  that  a 
contingent  liabilit}-  will,  per  se,  raise  an  irrefutable  inference  of  fraud 
so  as  to  invalidate  a  conveyance  made  during  the  continuance  of  such 
a  condition  of  affairs. 

The  case  of  Dodson  v.  Taylor,  24  Vr.  200,  is  not  in  any  wise  relevant 
to  our  present  inquiry.  The  question  then  under  advisement  was, 
whether  an  accommodation  indorser,  before  dishonor,  was  a  debtor 
within  the  meaning  of  the  statute  fo^the  relief  of  creditors  against 
"heirs  and  devisees."  The  case  presented  was  plainly  within  the 
statute.  In  the  case  of  New  Jersey  Insurance  Co.  v.-  Meeper,  8  Vr. 
282,  it  was  declared  that  the  act  embraced  within  its  policy  even  so 
uncertain  a  liability  as  inhered  in  a  warranty  of  title  to  lands.  It  is  true 
that  in  the  opinion  read  in  Dodson  v.  Taylor  the  view  is  expressed  that 
by  the  mere  act  of  indorsement  a  person  becomes  a  present  debtor.  It 
is  said  :  "  But,  from  the  time  of  the  indorsement,  he  is  bound  for  the 
payment  of  the  debt,  and  a  person  so'circumstanced  is,  in  both  common 
and  legal  parlance,  a  debtor." 

It  is  not  perceived  how  this  doctrine  is  to  be  sustained.  So  far  as  is 
known,  no  person  ever  thought  or  styled  himself,  or  was  styled  by 
others,  a  debtor  by  reason  of  his  having  become  an  accommodation 
indorser.  If  a  merchant  were  called  upon  to  make  out  a  list  of  his 
debts,  it  is  not  believed  that  it  would  ever  occur  to  him  to  put  in  such 
account  the  moneys  called  for  in  the  paper  that  had  been  gratuitously 
indorsed  by  him.  Under  the  law  of  this  State,  the  debts  of  the  citizen 
taxed  can,  to  a  certain  extent,  be  deducted  from  his  assessment,  and 
certainly  no  one  can  doubt  that  if  any  person,  for  such  a  purpose,  should 
include  in  his  sworn  statements  the  amounts  secured  by  his  accommo- 
dation indorsements,  such  taxpayer  could  be  convicted  of  perjury. 
The  hypothesis  suggested  would,  in  practice,  be  fraught  with  embar- 
rassments. If,  by  the  mere  indorsement,  the  indorser  becomes,  ipso 
facto,  a  debtor  of  the  holder  of  the  note,  then,  by  parity  of  reasoning, 
it  follows  that,  from  the  same  cause,  the  maker  of  the  paper  becomes 
the  debtor  of  the  indorser.  And  indeed  it  has,  on  several  occasions  in 
legal  practice,  been  attempted  to  utilize  this  notion  in  the  entry  of  judg- 
ment on  bonds  with  warrants  of  attornej^.  Such  was  the  cause  essaj'ed 
in  the  case  of  Blackwell  et  al.  v.  Rankin,  3  Halst.  Ch.  152,  the  facts 
being  that  the  plaintiff  had  taken  judgment  on  an  affidavit  showing  that 
he  was  the  indorser  on  certain  notes  of  the  defendant,  and  which  situ- 
ation, it  was  insisted,  showed  a  present  debt.  This  contention  is  thus 
met  by  the  Chancellor.  He  says  :  "  It  is  an  abuse  of  language  to  say 
that,  because  I  indorse  j'our  note  to-day,  payable  three  months  hence, 
to  be  used  by  3-ou,  you  are  indebted  to  me  to-day  for  the  amount  of  it, 
and  that  it  is  a  debt  due  and  owing  to  me  to-day."  This  doctrine  is 
pointedly  approved  by  this  court  in  Clapp  v.  Ely,  3  Dutch.  592. 

But  it  is  to  be  remembered  that,  while  the  phraseology  in  question  is 
deemed  to  be  open  to  this  criticism,  nevertheless,  in  the  connection  in 
which  it  was  used,  it  probably  embodies  the  legal  rule  that  the  relation 


SECT.  I.]  SEVERS   V.   DODSON.  193 

which  the  holder  and  indorser  of  a  promissory  note  bear  to  each  other 
is  that  of  potential  debtor  and  creditor,  which  is  all  that  is  required  by 
the  statute  giving  relief  to  creditors  against  devisees  or  legatees.  This 
construction  was  the  result  of  a  consideration  of  the  lax  language  of  the 
act  as  enlightened  by  its  evident  policy.  It  was  a  remedial  measure, 
and  was,  therefore,  to  be  liberally  construed. 

But  the  present  case  demands  the  application  of  a  rule  the  most 
opposite  of  this.  We  are  not  now  called  upon  to  ascertain  the  mean- 
ing of  statutory  language  in  legislative  policy,  our  entire  province  being 
to  demarcate  the  rule  of  evidence  promulgated  by  ourselves,  that  makes 
the  existence  of  fraud  in  voluntary  conveyances,  under  a  certain  con- 
dition, a  mere  inference  of  law,  irrespective  of  the  truth.  The  rule  is 
one  of  the  most  rigorous  character,  having  the  operation  of  an  estoppel, 
and  is  to  be  kept  within  the  narrowest  limits.  It  is,  therefore,  enough 
for  this  court  to  say  that  the  contingent  liability  of  an  accommodation 
endorser,  before  dishonor,  does  not  make  him  a  debtor  so  that  the  holder 
of  the  paper  can  invalidate  a  voluntary  conveyance  made  by  him  when 
there  was  no  actual  fraud  in  the  transaction.1 

1  In  Thomson  v.  Crane,  73  Fed.  Hep.  327,  the  defendant  made  voluntary  convey- 
ances, not  being  at  the  time  indebted  other  than  on  a  guaranty  that  the  Reno  Manu- 
facturing Company  would  duly  perform  a  contract.  There  was  "  some  evidence 
tending  to  show  "  that  the  defendant  "  manifested  some  anxiety  or  uneasiness  about 
the  financial  affairs  "  of  the  Reno  Manufacturing  Company,  or  lack  of  confidence  in 
its  manager  prior  to  the  time  of  the  execution  of  the  conveyances ;  but  the  conveyances 
were  made  prior  to  any  action  on  the  guaranty.  The  court  set  aside  the  conveyances, 
HAWLEY,  J.,  saying  :  — 

"  It  is  claimed  that  complainants  were  not  creditors  of  E.  Crane  until  the  entry  of 
the  judgment  against  him  ;  that  the  guaranty,  if  signed  by  E.  Crane,  only  created 
a  contingent  liability  upon  his  part  which  might  result  in  his  becoming  indebted  to 
the  complainants  in  the  event  that  the  Reno  Manufacturing  Company  failed  to  faith- 
fully perform  its  agreement ;  that  such  obligations  are  to  be  distinguished  from  those 
by  note  or  bond  to  pay  a  specific  sum  of  money  at  a  given  time  where  an  indebt- 
edness can  be  said  to  exist  upon  the  signing  of  the  note  or  bond,  whereas  the  only 
obligation  assumed  by  the  guaranty  in  this  case  only  became  a  fixed  indebtedness 
when  it  was  ascertained  and  determined,  by  the  judgment,  that  the  Reno  Manufac- 
turing Company  had  not  kept  its  agreement,  and  the  extent  of  its  failure  so  to  do. 
If  this  proposition  can  be  maintained,  by  authority  and  reason,  it  is  an  end  of  this 
case ;  for  the  judgment  was  not  obtained  until  after  the  execution  and  delivery  of 
the  deeds  in  question,  and  the  defendants  would  be  entitled  to  a  judgment  in  their 
favor.  .  .  . 

"  The  complainants  in  this  case  do  not  rely  solely  on  the  judgment  to  establish  the 
date  when  they  became  creditors  of  E.  Crane.  They  introduced  the  original  agreement 
between  complainants  and  the  Reno  Manufacturing  Company,  and  the  guaranty,  as 
signed  by  E.  Crane,  on  the  10th  of  May,  1892,  which  was  prior  to  the  time  of  the  exe- 
cution of  the  deeds  herein  sought  to  be  set  aside.  A  creditor  is  not  simply  a  person  to 
whom  a  debt  is  due,  but  a  person  to  whom  any  obligation  is  due.  It  is  a  person  who 
has  the  right  to  require  the  fulfilment  of  any  obligation,  contract,  or  guaranty,  and  he 
is  to  be  considered  as  a  creditor  of  such  obligor  or  guarantor  from  the  time  of  his  enter 
ing  into  the  obligation. 

"  The  general  principle,  applicable  to  the  facts  of  this  case  is  well  expressed  in 
8  Am.  &  Eng.  Enc.  Law,  750,  as  follows:  — 

"  'A  creditor,  in  this  connection,  is  not,  necessarily,  the  holder  of  a  debt  merely,  as 
that  term  is  generally  understood ;  for  one  having  a  legal  right  to  damages  capable  of 


194  SEVERS  V,  DODSON.  [CHAP.  IV. 

judicial  enforcement  is  a  creditor,  within  the  meaning  of  the  statutes  and  law  upon  the 
subject  of  fraudulent  conveyances.  So,  where  one  incurs  liability  for  another,  as  surety 
or  the  like,  he  may  be  considered  as  a  creditor  of  the  latter  from  the  time  of  entering 
into  the  obligation,  and  various  other  claims,  absolute  or  contingent,  have  been  held 
sufficient  to  constitute  the  holders  thereof  creditors.' 

"  In  addition  to  the  authorities  there  cited,  see  Yeend  v.  Weeks,  104  Ala.  331 ;  Hun- 
singer  v.  Hofer,  110  lud.  390;  Bowen  ?;.  State,  121  Ind.  235. 

"  In  Bowen  v.  State,  the  court  said :  — 

" '  It  is  manifest,  as  it  seems  to  us,  that  the  liability  of  a  surety  on  a  guardian's  bond 
must  be  governed  by  the  same  general  principles  which  govern  the  liabilities  of  sure- 
ties on  other  obligations ;  that  he  cannot  give  away  all  of  his  property  to  the  detriment 
of  those  for  whose  benefit  the  bond  is  given.  The  contract  of  suretyship  is  in  force 
from  the  date  of  the  execution  of  the  bond,  though  the  liability  of  the  surety  to  pay 
depends  upon  the  conditions  of  the  bond.' 

"  In  Yeend  v.  Weeks,  the  court  said :  — 

"  '  It  must  be  stated,  iu  this  connection,  that  an  administration  bond  is  a  continuing 
obligation  of  security  from  the  day  of  its  execution  to  the  termination  of  the  adminis- 
trator's authority  to  act ;  and,  though  it  antedates  a  voluntary  conveyance,  yet  the 
ascertainment  of  its  breach,  by  proper  judicial  proceeding,  begun  and  concluded  after 
the  execution  of  such  conveyance,  will,  as  between  the  judgment  creditor  and  the 
grantor  in  the  conveyance,  relate  back  to  the  date  of  the  bond,  and  be  held  to  be 
a  debt  existing  at  the  time.  ...  A  contingent  claim  is  as  fully  protected  as  a  claim 
that  is  certain  and  absolute.' " 

In  accord  with  Thomson  v.  Crane,  besides  cases  therein  cited,  see  Rider  v.  Kidder, 
10  Ves.  360;  Bragg  v.  Patterson,  85  Ala.  233  ;  Yeend  v.  Weeks,  104  Ala.  331  ;  Mc- 
Laughlin  v.  Bank,  7  How.  220 ;  Keel  v.  Livingston,  34  Fla.  377 ;  Sanderson  v.  Snow, 
68  111.  App.  384;  Hatfield  v.  Merod,  82  111.  113  ;  Howe  v.  Ward,  4  Greenl.  195 ;  Pulsi- 
fer  v.  Waterman,  73  Me.  233,  238;  Williams  v.  Banks,  11  Md.  198,  242  ;  Pashby  v. 
Mandigo,  42  Mich.  172  ;  Ames  v.  Dorroh,  76  Miss.  187  ;  Post  v.  Stiger,  29  N.  J.  Eq.  554, 
559;  Shurts  v.  Howell,  30  N.  J.  Eq.  418 ;  Jackson  v.  Seward,  5  Cow.  67  ;  Van  Wyck 
v.  Seward,  18  Wend.  375;  Young  v.  Heermans,  66  N.  Y.  374,  384;  Kerber  v.  Ruff, 
4  Ohio  Dec.  406;  Hamet  v.  Dundass,  4  Barr,  178;  Beach  v.  Boynton,  26  Vt.  725; 
Mason  v.  Pierron,  69  Wis.  585.  Contra  is  Henderson  v.  Dodd,  1  Bailey,  Eq.  138. 

It  is  to  be  noticed  that  in  many  of  these  cases  there  was  evidence  of  an  actual  in- 
tent to  defraud  the  contingent  creditor. 

In  Bridgford  v.  Riddell,  55  111.  269,  one  holding  a  warranty  of  title  in  a  deed  of  real 
estate  was  held  not  to  be  an  existing  creditor  of  the  warrantor  at  any  time  prior  to 
eviction.  Bat  see  contra,  Wright  v.  Nipple,  92  Ind.  310. 


SECT.  I.]  HAIiLAN   V.   MAGLAUGHLIN.  195 


HARLAN  v.  MAGLAUGHLIN. 
PENNSYLVANIA  SUPREME  COURT,  1879. 

[Reported  in  90  Pennsylvania,  293.] 

ERROR  to  the  Court  of  Common  Pleas  of  Cumberland  County,  of 
May  Term,  1879,  No.  89. 

Ejectment  by  Maud  Maglaughlin  and  Wilmer  K.  Maglaughlin,  by 
their  guardian,  William  A.  Coffey,  against  Anne  Harlan  and  David 
Sipe,  for  two  lots  in  Carlisle,  Pennsylvania. 

On  March  31,  1859,  John  Mell  conveyed  by  a  deed  a  lot  of  ground 
to  Isabella  Noble,  wife  of  John  B.  Noble,  for  $50.  This  deed  was  duly 
recorded  August  27,  1859.  To  the  same  grantee  William  Blair  con- 
veyed by  deed  a  lot  of  ground  on  March  20,  1865,  for  $200^  which  deed 
was  recorded  March  28,  1868.  On  March  5,  1869,  John  B.  Noble 
made  a  note  payable  to  Christ.  Kindler,  upon  which  suit  was  brought 
and  judgment  recovered  for  $129.47,  with  interest  from  22d  Septem- 
ber, 1869.  Kfi.fa.  and  vend.  ex.  issued  upon  this  judgment,  and  the 
above-mentioned  lots  were  sold,  as  the  property  of  John  B.  Noble,  in 
1870,  to  Charles  E.  Maglaughlin,  whose  heirs  bring  this  ejectment. 
Isabella  Noble,  dj-ing  about  28th  June,  1875,  letters  of  administration 
on  her  estate  were  issued  to  J.  J.  Good,  who,  under  an  order  of  the 
Orphans'  Court  of  Cumberland  Count)-,  sold  the  above  lots,  October  31, 
1877,  to  David  Sipe,  one  of  the  defendants. 

At  the  trial,  before  HERMAN,  P.  J.,  the  plaintiff  gave  evidence  tend- 
ing to  show  that  John  B.  Noble  paid  for  these  lots,  and  directed  the 
name  of  his  wife  to  be  used  as  that  of  the  grantee  therein.  There  was 
also  evidence  that,  when  the  first  deed  was  made,  Noble  was  indebted 
to  different  parties  in  the  sums  of  $3.37  and  $60,  payment  of  which  was 
not  shown  ;  that,  in  the  year  1859,  after  the  Mell  deed  was  made,  debts 
were  contracted  to  the  following  amounts  :  May  10,  $18  ;  May  20,  $45  ; 
November  29,  $39  (reduced  October  14,  1861,  to  $35.49).  In  the  year 
1860,  as  follows:  January  13,  $60,  which  was  paid;  February  22, 
$21.92,  likewise  paid.  Judgment,  April  14,  1860,  for  $5  penalty  for 
use  of  scales  at  suit  of  Borough  of  Carlisle ;  and  in  1862,  May  14, 
$4.02,  which  was  paid ;  another,  originally  $65,  but,  26th  November, 
1862,  reduced  to  $6.50. 

As  evidence  of  fraudulent  intent  on  the  part  of  Noble  in  having  these 
conveyances  made  to  his  wife,  one  Foote  testified  that  Noble  "  told  me 
before  the  war,  in  1859,  that  he  was  in  a  good  bit  of  trouble,  and  that 
he  was  going  to  put  what  he  had,  his  property,  over  into  Belle's  hands. 
He  called  his  wife  Belle." 

[The  defendants  submitted  several  points  of  law,  the  statement  of 
which  and  the  answers  of  the  court  thereto  are  here  omitted,  as  a  single 


196  HARLAN   V.   MAGLAUGHLIN.  [CHAP.  IV. 

question  of  law  only  was  involved,  and  that  is  sufficiently  stated  in  the 
opinion.] 

The  verdict  was  for  the  plaintiffs.  Defendants  took  this  writ,  and, 
inter  alia,  assigned  for  error  the  answers  to  the  above  points. 

W.  Trickett,  J.  W.  Wetzel,  and  W.  F.  Sadler,  for  plaintiffs  in  error. 
The  broad  form  of  the  instruction  with  respect  to  future  creditors,  in 
the  answers  which  are  assigned  as  errors,  left  the  jury  open  to  a  mis- 
apprehension of  the  meaning  of  the  word  "defraud,"  when  applied  to 
remotely  future  creditors.  The  only  conceivable  sense  in  which  the 
facts  enumerated  would  make  it  inferable  that  Noble,  in  1859,  intended 
to  hinder  and  defraud  a  debt  which  began  in  1869,  is  that  of  the  bare 
purpose  to  put  the  property  in  his  wife,  so  that  it  should  not  be  in  dan- 
ger of  being  taken  from  her  by  debts  at  any  time  in  the  future  to  be 
contracted.  But  this  is  the  purpose  of  all  settlements  on  wives. 

The  jury  were  in  substance  told  that  if  the  effect  of  the  conveyance 
to  the  wife  was  to  hinder  and  delay  creditors  to  whom  the  grantor  sub- 
sequently became  indebted,  and  that  the  grantor,  in  making  it,  con- 
templated tttat  it  might  have  that  effect,  it  would  be  fraudulent  and 
void.  This  was  clearly  erroneous.  Snj-der  v.  Christ,  3  Wright,  507 ; 
Williams  v.  Davis,  19  P.  F.  Smith,  28. 

When  future  creditors  are  deemed  defrauded,  it  is  invariably  where 
the  debts  arise  soon  after  the  transfer,  when  the  circumstances  warrant 
the  presumption  of  the  injury  to  the  creditor  by  a  dependence  on  the 
continued  ownership  of  the  debtor.  Williams  v.  Davis,  supra  /  Nippe's 
Appeal,  25  P.  F.  Smith,  478  ;  Snyder  v.  Christ,  supra.  Or  when  some 
new  or  hazardous  business  is  contemplated.  Black  v.  Nease,  1  Wright, 
433  ;  Monroe  v.  Smith,  29  P.  F.  Smith,  462.  The  deeds  here  were  also 
of  record.  The  juiy  were  in  substance  told  that  from  the  bare  fact  of 
debts,  when  the  Mell  deed  was  made,  which  in  fact  were  hindered,  &c., 
they  can  find  an  expressly  fraudulent  intent  with  respect  to  a  debt  not 
contracted  until  ten  years  after  the  recording  of  the  Mell  deed.  Under 
this  instruction  fraud,  in  law,  is  made  sufficient  evidence  of  fraud  in 
fact.  Cotemporaneons  debts,  .in  fact  delayed,  show  fraud  in  law  ;  and 
from  this  fraud  in  law  alone,  the  jury  are  permitted  to  infer  fraud  in 
fact,  in  respect  to  debt  originating  ten  years  later. 

S.  Hepburn,  Jr.,  and  8.  Hepburn,  for  defendants  in  error.  The  Stat- 
ute of  13  Elizabeth  protects  creditors  whose  debts  accrue  subsequent 
to  the  fraudulent  conveyance,  equally  as  well  as  those  whose  debts 
were  due  when  it  was  made.  Twyne's  Case,  1  Sm.  L.  Cas.  5  ;  Towns- 
bend  v.  Windham,  2  Ves.  11 ;  Taylor  v.  Jones,  2  Atk.  600  ;  Anderson 
v.  Roberts,  18  Johns.  526. 

Where  there  is  a  voluntary  settlement  and  indebtedness  at  the  same 
time,  and  the  recover}'  of  these  debts  is  delaj'ed,  hindered,  or  defeated, 
such  settlement  is  fraudulent  and  void,  and  the  avoidance  of  it,  on 
account  of  such  indebtedness,  lets  in  the  subsequent  creditors  on  the 
property  to  satisfy  their  debts.  Thompson  v.  Dougherty,  12  S.  &  R. 
455.  The  intent  with  which  a  conveyance  was  made  is  for  the  jury  to 
determine. 


SECT.  I.]  HAELAN   V.   MAGLAUGHLIN.  197 

Mr.  Justice  GORDON  delivered  the  opinion  of  the  court,  October  6, 
1879. 

The  court  below  fell  into  an  error  which  pervades  every  part  of  this 
case.  A  single  point  and  answer  will  serve  to  develop  this  error,  and 
determine  the  material  questions  involved  in  this  controversy.  The 
counsel  for  the  defendants  below,  plaintiffs  in  error,  asked  the  court  to 
say  to  the  jury  that  «•"  to  render  a  voluntary  conveyance  void,  as  to 
subsequent  creditors,  it  must  appear  that  it  was  made  in  contemplation 
of  future  indebtedness,  and,  until  this  was  shown,  the  plaintiffs  could 
not  call  upon  the  defendants  to  prove  the  consideration  for  the  convej*- 
ance  to  Isabella  Noble  through  whom  they  claim  title."  The  court 
answered:  "This  would  be  so,  if,  at  the  time  of  the  voluntary  con- 
veyance, no  debts  of  the  grantor  existed,  the  recovery  of  which  would 
be  thereby  delayed,  hindered,  or  defeated.  Where  there  are  existing 
debts  at  the  time,  and  the  conveyance  has  delayed,  hindered,  or  de- 
feated their  recovery,  this  circumstance  raises  a  suspicion  of  fraud  from 
which  an  intent  to  defraud  subsequent  as  well  as  existing  creditors  may 
be  inferred." 

This  language  is  borrowed  from  the  case  of  Thompson  v.  Dougherty, 
12  S.  &  R.  448,  where  it  is  applied,  as  in  the  case  in  hand,  to  debts 
contracted  after  the  execution  of  the  voluntary  grant.  It  is,  however, 
mere  obiter  dicta,  not  called  for  by  the  facts  in  the  case,  and  not  true 
in  law.  Notwithstanding  the  many  loose  declarations  ij|  the  books  to 
the  contrary,  the  Statute  13  Elizabeth  does  not  make  voluntary  con- 
ve\-ances  void  as  to  future  creditors,  unless  there  is  some  evidence  to 
indicate  that  the  grantor  intended  to  withdraw  his  property  from  the 
reach  of  such  creditors.  Snyder  v,  Christ,  3  Wright,  499.  And  it  is 
properly  said  in  Williams  v.  Davis,  19  P.  F.  Smith,  21,  that  even  an 
expectation  of  future  indebtedness  will  not  render  a  voluntary  conve}'- 
ance  void  where  there  is  no  fraud  intended  by  such  conveyance.  And 
so,  also,  in  Thompson  v.  Dougherty,  Mr.  Justice  Duncan,  citing  Sax- 
ton  v.  Wheaton,  8  Wheat.  229,  says:  "  Chief  Justice  Marshall  decided 
that  a  post-nuptial  settlement  on  a  wife  and  children  b}-  a  man  who  is 
not  indebted  at  the  time  was  valid  against  subsequent  creditors,  and 
that  the  statute  does  not  apply  to  such  creditors  if  the  conveyance  be 
not  made  with  a  fraudulent  intent."  A  similar  ruling  will  be  found  in 
Townsend  v.  Maynard,  9  Wright,  198,  and  in  Greenfield's  Estate,  2 
Harris,  489.  In  the  latter  case,  which  involved  a  deed  of  trust  of  all 
the  grantor's  property,  it  was  alleged  by  Mr.  Justice  Bell  to  be  a 
sound  rule  of  law  that  subsequent  indebtedness  cannot  be  invoked  to 
invalidate  a  voluntary  settlement  made  by  one  not  indebted  at  the  time, 
or  who  reserves  sufficient  to  pay  all  existing  debts,  unless  there  be 
something  to  show  that  the  settlement  was  made  in  anticipation  of 
future  indebtedness.  It  is  further  said  that  though  some  doubt  was 
thrown  on  this  principle  by  Thompson  ?'.  Dougherty  it  was  afterwards 
dissipated  by  Mateer  u.  Hisslm,  3  P.  &  W.  161.  Furthermore,  the 
ease  of  Snyder  v.  Christ,  above  mentioned,  which  is  very  like  the  case 


198  HARLAN    V.   MAGLAUGHLIN.  [CHAP.  IV. 

in  hand,  settled  any  doubts  that  may  previously  have  existed  as  to  the 
effect  of  subsequent  indebtedness.  For  though  it  seems  to  have  been 
generally  admitted  that  the  statute  is  not  operative  as  to  such  indebt- 
edness, yet  the  admission  has  been  so  beclouded  by  apparently  incon- 
sistent dicta  and  qualifications  as  to  render  its  meaning  obscure  and 
unintelligible.  The  settlement  is  good  against  after  contracted  debts  if 
the  settlor  is  unindebted  at  the  time,  or  if  he  b»s  made  provision  for 
existing  debts,  and  so  on.  But  how  if  there  be  existing  debts  not  pro- 
vided for,  and  how  if  the  settlement  is  fraudulent  as  to  such  debts? 
Will  the  settlement,  in  such  case,  be  void  as  to  all  future  indebtedness? 
Is  there  no  place  for  repentance  and  atonement  by  the  after  payment 
of  existing  debts,  or  may  after  creditors,  notwithstanding  such  pay- 
ment, avoid  the  deed?  Justice  Duncan  answers  these  questions  by 
saying:  "  If  the  jury  find  a  prior  indebtedness,  and  any  of  that  class 
of  creditors  is  defeated  by  the  settlement,  then  my  opinion  is  that  the 
property  conveyed  is  to  be  considered  as  part  of  the  estate  of  the 
debtor  for  the  benefit  of  all  his  creditors.  I  know  no  midway.  When 
a  statute  declares  a  matter  void  it  thrusts  all  to  destruction  like  a 
tyrant,  while  the  common  law,  like  a  nursing  father,  makes  that  void 
where  the  fault  is  and  preserves  the  rest."  In  this,  singular!}'  enough, 
the  fact  is  overlooked  that  the  statute  makes  the  gift  or  deed  void  only 
as  to  those  who  may  be  hindered,  delayed,  or  defrauded  thereb}-,  and 
that  in  this  itffollows  the  common  law.  This  oversight,  however,  would 
seem  to  be  accounted  for  by  the  fact  that  the  opinion  of  Chief  Justice 
Spencer,  in  Anderson  v.  Roberts,  18  Johns.  526,  is  adopted,  wherein 
it  is  said  that  the  Statute  of  13  Elizabeth  protects  creditors  whose 
debts  accrue  subsequently  to  the  fraudulent  conveyance  equally  as 
those  whose  debts  were  due  when  it  was  made. 

It  would  seem  to  be  on  this  that  Justice  Duncan  founds  the  asser- 
tion, alreadj-  referred  to,  that  the  existence  of  prior  debts  creates  a 
suspicion  of  fraud,  which  can  only  be  repelled  by  showing  that  the 
subsequent  creditors  were  provided  for  in  the  settlement.  This,  as  it 
stands,  is  unintelligble  ;  for  one  cannot  provide  for  what  he  does  not 
anticipate  ;  if  he  has  no  future  debts  in  contemplation,  how  is  it  pos- 
sible to  make  provision  for  them  ?  It,  in  fact,  simply  amounts  to  say- 
ing that  the  statute  is  operative  upon  subsequent,  as  well  as  present, 
indebtedness.  In  like  manner,  it  has  been  said,  the  settlor  must  not 
only  retain  property  enough  to  satisfy  present  debts,  but  also  to  answer 
the  reasonable  probabilities  of  the  future.  But  this  rule  is  unreasonable 
in  this,  that  it  prevents  men  of  limited  means  from  making  any  settle- 
ment whatever  upon  their  wives  and  children,  a  result  certainly  not 
contemplated  by  the  statute.  Besides  this,  the  attempt  to  keep  men 
and  women  in  judicial  leading  strings  all  their  lives,  to  direct  what  they 
shall  or  shall  not  do  with  their  own  property,  is  a  matter  which  com- 
mends itself  neither  to  sound  legal  reason  nor  to  common  sense.  If  a 
man  is  in  debt,  he  may  not  give  away  his  property  until  he  has  paid  or 
provided  for  such  debt ;  the  reason  for  this  is  found  in  the  principles 


SECT.  I.]  HARLAN  V.  MAGLAUGHLIN.  199 

of  common  honesty.  If  he  contemplates  future  indebtedness,  he  must, 
for  a  like  reason,  provide  for  it,  but  he  must  not  provide  for  what  he 
does  not  anticipate,  and  for  what  may  never  occur.  And  if,  without 
concealment,  a  man  chooses  to  give  away  all  his  estate,  or  settle  it 
upon  his  wife  and  children,  what  right  has  a  subsequent  creditor  to 
complain?  It  did  him  no  harm  ;  he  »;ave  the  grantor  no  credit  because 
of  such  property  ;  he  is,  therefore,  neither  cheated  nor  impoverished 
by  such  gift.  Furthermore,  if  A.,  by  a  voluntary  conveyence,  defrauds 
B.  this  year,  how  is  C.,  whose  debt  has  no  existence  until  ten  years 
after,  defrauded  by  that  same  conveyance  ?  It  certainly  will  not  do  to 
say  that  because  B.  was  cheated  therefore  C.  is  cheated,  for  between 
B.  and  C.  there  is  no  possible  connection  or  privity.  But  if  C.  has  not 
been  defrauded  by  the  grant,  then,  if  the  statute  means  what  it  most 
expressly  says,  he  cannot  impeach  it. 

We  turn,  therefore,  with  satisfaction  to  the  case  of  Snyder  v.  Christ, 
where  we  have  the  plain  and  unambiguous  declaration  that  the  subse- 
quent creditor  can  avail  himself  only  of  that  fraud  which  is  practised 
against  himself.  The  doctrine  thus  announced  is  made  the  more  posi- 
tive in  that  it  is  said  if  the  creditor  knew  of  the  voluntar}'  conve3-ance 
when  he  gave  the  credit  he  could  not  be  defrauded  thereby,  and  hence 
could  not  impeach  it. 

This  case,  not  only  from  the  direct  manner  in  which  the  principal 
subject  of  discussion  is  treated,  but  also  by  reason  of  the  facts  upon 
which  it  depends,  must  be  regarded  as  a  final  determination  of  the 
question  in  hand. 

These  facts  are,  briefl}*,  as  follows  :  John  Snyder,  being  the  owner  of 
a  tract  of  one  hundred  acres  of  land,  conveyed  it  to  one  John  Reger,  in 
trust  for  the  use  of  himself  and  wife  for  their  joint  lives  and  the  life  of 
the  survivor  of  them,  with  remainder  to  two  children  of  the  wife,  and 
to  such  children  as  the  grantors  might  have.  This  was  all  the  real 
estate  Snyder  owned,  and  it  was  in  proof  that,  at  the  date  of  the  deed, 
his  debts  amounted  to  some  $200,  and  that  his  personal  property  did 
not  exceed  in  value  $150.  Furthermore,  he  had  expressed  apprehen- 
sions of  a  claim  for  damages  for  a  breach  of  promise  suit  of  marriage, 
and,  within  a  few  days  after  the  making  of  the  deed,  he  had  borrowed 
$200,  and  had  also  contracted  the  debt  on  a  judgment  for  which  the 
property  in  suit  was  sold. 

Here,  then,  we  have  every  element  necessary  for  a  test  case.  A  vol- 
untary deed  in  trust  of  all  the  grantor's  real  estate,  providing,  inter 
alia,  for  himself  for  life ;  existing  debts  unprovided  for,  and  as  to 
which  this  deed  was  undoubtedly  fraudulent ;  no  property  reserved  for 
the  reasonable  probabilities  of  the  future,  an  immediate  contraction  of 
subsequent  debts,  and  an  expressed  apprehension  of  a  pending  claim 
for  damages.  It  was,  nevertheless,  held,  that  of  these  facts  the  subse- 
quent creditor  could  not  avail  himself,  unless  he  could  further  show 
that  a  fraud  was  intended  against  himself.  In  other  words,  these  facts 
standing  alone  did  not  make  for  him  even  a  prima  facie  case. 


200  HARLAN   V.   MAGLAUGHLIN.  [CHAP.  IV. 

Snyder  v.  Christ  was  followed  in  Monroe  v.  Smith,  29  P.  F.  Smith, 
459,  in  which  it  was  said  that  a  deed,  void  as  to  existing  creditors,  by 
reason  of  the  grantor's  fraud,  is  not  necessarily  void  as  to  subsequent 
creditors  ;  that  it  is  bad  only  as  to  those  it  is  intended  to  defraud. 

It  is  scarcely  necessary  to  say  that  these  cases  rule  the  one  now 
under  consideration.  The  deed  of  John  Mell  to  Isabella  Noble  was 
executed  on  the  31st  of  March,  1859,  and  was  recorded  in  August  of 
the  same  year.  The  deed  of  William  Blair  to  Mrs.  Noble  was  made 
March  20,  1865,  and  was  recorded  28th  of  March,  1868.  The  judg- 
ment of  Kindler  v.  John  B.  Noble,  upon  which  the  property  in  dispute 
was  sold,  was  founded  on  a  note  dated  March  5,  1869,  ten  years  after 
the  date  of  the  first  deed,  and  nearly  three  years  after  the  date  of  the 
second.  "When,  in  addition  to  this,  we  reflect  that  Noble's  debts  at  no 
time  were  large  ;  that  the  testimony  of  Foote  relates  to  declarations 
made  by  Noble  ten  years  before  Kindler's  debt  had  an  existence  ;  that 
there  is  not  one  particle  of  evidence,  direct  or  indirect,  that  a  fraud 
was  intended  on  future  creditors,  we  must  certainly  conclude  that  the 
plaintiffs  had  no  case,  and  that  the  court  should  so  have  instructed  the 
jury. 

The  judgment  is  reversed,   and  a,  venire  facias  de  novo  is 
awarded.1 

1  Horbach  v.  Hill,  112  U.  S.  144;  Schreyer  v.  Scott,  134  U.  S.  405,  411  ;  Horn  v. 
Volcano  Water  Co.,  13  Cal.  62;  Walter  v.  Lane,  1  MacArthnr  (D.  C.),  275  ;  Mixell  v. 
Lutz,  34  111.  382;  Springer  v.  Bigford,  160  HI.  495;  Lynch  v.  Raleigh,  3  Ind.  273; 
Hutchinson  v.  First  Nat.  Bank,  133  Ind.  271 ;  Sheppard  v.  Thomas,  24  Kan.  780 ; 
Voorhis  v.  Michaelis,  45  Kan.  255;  Todd  v.  Hartley,  2  Met.  (Ky.)  206 ;  Fullington  v. 
Northwestern,  &c.  Assoc.,  48  Minn.  490;  First  Nat.  Bank  v.  Brass,  71  Minn.  211,  215; 
Simmons  v.  Ingram,  60  Miss.  886;  Bauer  Grocery  Co.  v.  Smith,  74  Mo.  App.  419; 
Gardner  v.  Kleinke,  46  N.  J.  Eq.  90;  Minzesheimer  v.  Doolittle,  56  N.  J.  Eq.  206,  230; 
Neuberger  v.  Keim,  134  N.  Y.  35;  Crawford  v.  Beard,  12  Ore.  447  ;  Ditman  v.  Raule, 
124  Pa.  225,  ace. 

In  Brundage  v.  Cheneworth,  101  la.  256,  263,  the  court,  modifying  expressions  in 
earlier  cases,  said  :  "  We  think  the  correct  rule  is  :  (1)  A  conveyance  which  is  merely 
voluntary,  and  when  the  grantor  had  no  fraudulent  view  or  intent,  cannot  be  im- 
peached by  a  subsequent  creditor.  (2)  A  conveyance  actually  and  intentionally 
fraudulent  as  to  existing  creditors,  as  a  general  rule,  cannot  be  impeached  by  subse- 
quent creditors.  (3)  If  a  conveyance  is  actually  fraudulent  as  to  existing  creditors, 
and  merely  colorable,  and  the  property  is  held  in  secret  trust  for  the  grantor,  who  is 
permitted  to  use  it  as  his  own,  it  will  be  set  aside  at  the  instance  of  subsequent  cred- 
itors. The  second  rule  above  laid  down  is  subject  to  some  exceptions,  among  which 
may  be  mentioned  cases  in  which  the  conveyance  is  made  by  the  grantor  with  the  ex- 
press intent  and  view  of  defrauding  those  who  may  thereafter  become  his  creditors  ; 
cases  wherein  the  grantor  makes  the  conveyance  with  the  express  intent  of  becoming 
thereafter  indebted  ;  cases  of  voluntary  conveyances,  when  the  grantor  pays  existing 
creditors  by  contracting  other  indebtedness  in  a  like  amount,  and  wherein  the  subse- 
quent creditors  are  subrogated  to  the  rights  of  the  creditor  whose  debts  their  means 
have  been  used  to  pay  ;  cases  in  which  one  makes  a  conveyance  to  avoid  the  risks,  or 
losses,  likely  to  result  from  new  business  ventures,  or  speculations.  The  following  au- 
thorities will  be  found  to  support  the  above  rules  and  exceptions :  Wait,  Fraud.  Conv., 
§§  96,  97,  98,  100;  Bump,  Fraud.  Conv.  (4th  ed.),  §§  290,  293,  296,  300;  2  Pomeroy, 
Eq.  Jur.,  §§  971-973  ;  1  Am.  Lead.  Cas.  (5th  ed.),  p.  42,  notes.  We  have  not  over- 
looked the  fact  that  there  are  respectable  authorities  holding  that  a  conveyance  actu- 


SECT.  I.]  MABSTON   V.    MARSTON.  201 


X- 

"V 


MARSTON   v.  MARSTON. 
MAINE  SUPREME  JUDICIAL  COURT,   1867. 

[Reported  in  54  Maine,  476.] 

APPLETON,  C.  J.  On  the  17th  February,  1857,  the  defendant,  Oliver 
B.  Marston,  being  the  owner  of  the  demanded  premises,  conveyed  the 
same  to  his  brother  Joseph  Marston  j]pjLJJifi_jigjisidjemtion_of_  fifteen 
hundred  dollars,  as  expressed  in  the  deed,  for  which  sum  he  received 
the  note  of  Joseph  Marston.  The  same  day  Joseph  Marston  deeded 
the  land  of  which  he  had  thus  acquired  the  title,  to  Fanny  Marston, 
the  wife  of  Oliver  B.  Marston,  and  took  back  the  note  he  had  just 
given.  *\ 

The  plaintiff  was  a  creditor  of  Oliver  B.  Mar>t6n  prior  to  these  con- 
veyances. (They  were  without  consideratioi^and  their  obvious  pur- 
pose and  effect  was  to  hinder,  delay,  and  defraud  creditors,  and  such 
purpose  and  effect  could  not  but  have  been  known  to  all  the  parties  to 
these  transactions. 

Though  the  plaintiff  renewed  his  original  note  by  taking  a  new  one 
since  these  conveyances,  it  does  not  affect  his  legal  rights,  for  a  con- 
veyance made  without  consideration,  and  for  the  purpose  of  defrauding 
creditors,  is  void  as  well  against  subsequent  as  prior  creditors  of  the 
grantor.  Clark  v.  French,  23  Maine,  221  ;  Wyman  v.  Brown,  50 
Maine,  139.1 

If  the  conveyances  referred  to  were  fraudulent  and  void  as  to  cred- 
itors, the  plaintiff  might  impeach  them.  Being  void,  the  title  is  re- 
garded as  remaining  in  the  fraudulent  grantor,  and  the  judgment 
creditor  by  a  levy  acquires  such  seisin  as  enables  him  to  maintain  a 
real  action  against  the  fraudulent  grantor  or  grantee. 

In  cases  like  Houston  v.  Jordan,  38  Maine,  521,  Low  v.  Marco,  53 
Maine,  45,  and  Howe  v.  Bishop,  3  Met.  28,  where  the  legal  title  was 
never  in  the.judgment  debtor,  the  creditor  does  not  acquire  the  legal 
title  by  a  levy.  But  in  the  present  case  the  legal  title  was  in  Oliver  B. 
Marston,  and  his  conveyance  being  fraudulent,  the  plaintiff  by  his  levy 
acquired  the  title.  Defendant  defaulted. 

{illy  fraudulent  as  to  the  existing  creditors  may  for  that  reason  alone  he  avoided  hy 
subsequent  creditors.  We  are  not,  however,  prepared  to  assent  to  the  correctness  of 
such  a  doctrine.  Under  our  holding,  the  petition  stated  a  pood  cause  of  action  under 
the  third  rule  above  stated,  and  hence  the  demurrer  was  improperly  sustained." 

1  Hurdick  v.  Gill,  7  Fed.  Rep.  668  ;  Echols  v.  Orr.  106  Ala.  237  ;  Jordan  o.  Collins, 
107  Ala.  572;  Prestwood  v.  Troy  Fertilizer  Co.,  115. Ala.  668;  May  v.  State  Nat.  Hank, 
59  Ark.  614;  Wilcoxen  v.  Morgan,  2  Colo.  473;  Mnlock  i>.  Wilson,  19  Colo.  296; 
Ruffing  v.  Tilton,  12  Ind.  259  ;  Dart  i».  Stewart,  17  Ind.  221  ;  Jonen  r.  Light,  86  Me. 
437  ;  Day  v.  Cooley,  118  Mass.  524,  527 ;  McConihe  v.  Sawyer.  12  N.  H.  396;  Smyth 
v.  Carlisle,  16  N.  H.  464,  17  N.  H.  417  ;  Doe  dem.  Flynn  i>.  Williams,  7  Ired.  L.  32; 
Trezevant  v.  Terrell,  96  Tenn.  528 ;  McLane  v.  Johnson,  43  Vt.  48 ;  Pratt  v.  Cox,  22 


202  HAGERMAN   V.   BUCHANAN.  [CHAP.  IV. 


HAGERMAN  v.   BUCHANAN. 
NEW  JERSEY  COURT  OF  ERRORS  AND  APPEALS,  MARCH  TERM,  1889. 

[Reported  in  45  New  Jersey  Equity,  292.] 

REED,  J.  The  complainants  .below  furnished  lumber  to  J.  H.  Hager- 
man  &  Son  between  the  dates  of  July  24,  1886,  and  November  29, 
1886.  On  March  4,  1889,  a  judgment  was  recovered  in  the  Supreme 
Court  for  the  sum  of  $958.53,  the  price  of  said  lumber.  Under  a  _/?./«. 
issued  thereon,  a  certain  house  and  lot  in  Asbury  Park  was  levied  upon. 
The  title  of  this  property  stood  in  the  name  of  Sarah  Hagerman,  the 
wife  of  the  defendant,  John  H.  Hagerman.  It  was  conve3Ted  to  her  by 
her  husband,  through  an  intermediate  person,  on  July  17th,  1883.  The 
bill  in  this  case  was  filed  by  Buchanan  &  Co.,  the  judgment  creditors, 
for  the  purpose  of  having  the  conveyance  made  by  Hagerman  to  his 
wife  declared  void,  upon  the  ground  that  it  was  made  to  hinder  and 
delay  creditors,  and  to  have  the  property  sold  and  the  proceeds  applied 
to  the  payment  of  their  judgment.  The  court  below  advised  that  the 
case  stood  in  the  same  posture  as  that  of  Demorest  v.  Terhune,  3  C.  E. 
Gr.  532,  and  that  the  rule  adopted  in  that  case  was  properly  applicable 
to  this.  A  decree  was  accordingly  made  that  the  deed  made  by  Hager- 
man to  his  wife  should  be  regarded  only  as  a  security  for  the  consider- 
ation actually  paid  b}'  her. 

It  is  perceived  that  the  debt  of  the  complainant  was  contracted  over 
three  years  after  the  conveyance  was  made  which  is  attacked.  If  the 
conveyance  is  to  be  regarded  as  in  a  degree  voluntary,  the  creditor  has 
a  burden  imposed  upon  him  which  would  not  exist  had  his  debt  ante- 
dated the  deed.  The  character  of  a  voluntary  conveyance,  when  at- 
tacked by  a  creditor  having  a  pre-existing  claim,  is  definitely  settled  in 
this  court.  In  the  case  of  Hasten  v.  Castner,  4  Stew.  Eq.  697,  after 

Gratt.  330  ;  Johnson  w.  Wagner,  76  Va.  587,  591  ;  Silvernail  v.  Greaser,  27  W.  Va. 
550,  ace. 

In  a  few  cases  the  statement  of  the  law  is  qualified  as  in  England  by  the  require- 
ment that  some  antecedent  debt  must  be  still  unpaid.  Toney  v.  McGehee,  38  Ark.  419 
(conf.  May  v.  State  Nat.  Bank.  59  Ark.  614)  ;  Barbour  v.  Conn.  Mut.  L.  I.  Co.,  61 
Conn.  240,  251  ;  Claflin  v.  Mess,  30  N.  J.  Eq.  211  (conf.  Allaire  v.  Day,  30  N.  J. 
Eq.  231).  In  the  case  last  cited  the  court  say:  "According  to  the  complainant's 
proofs  the  husband  procured  the  lands  to  be  conveyed  to  his  wife  after  he  became  in- 
solvent, with  design  to  save  his  property  from  his  creditors.  This  rendered  the  deeds 
fraudulent  in  fact,  and  voidable  by  either  antecedent  or  subsequent  creditors.  Cook 
v.  Johnson,  1  Beas.  54  ;  Belford  v.  Crane,  1  C.  E.  Gr.  271  ;  Ridgeway  v.  Underwood, 
4  Wash.  C.  C.  137.  There  are  authorities  which  hold  that  a  subsequent  creditor  may 
impeach  a  voluntary  conveyance  simply  on  the  ground  that  it  was  executed  in  fraud 
of  antecedent  creditors,  but  in  that  case  he  is  bound  to  show  that  some  of  the  antece- 
dent debts  still  remain  unpaid.  Hunt  on  Fraud.  Conv.,  52  ;  1  Am.  Lead.  Cas.,  41  ; 
Spirett  v.  Willows,  3  DeG.  J.  &  S.  292  ;  Freeman  v.  Pope,  L.  K.  (9  Eq.  205)  ;  s.  c.  L.  R, 
(5  Ch.  Ap.)  536."  See  also  Perrine  v.  Perrine  (N.  J.  Eq.)  50  Atl.  Rep.  694. 

But  in  Gardner  v.  Kleinke,  46  N.  J.  Eq.  90,  it  was  held  that  even  though  antecedent 
creditors  set  a  conveyance  aside,  subsequent  creditors  could  only  share  in  the  proceeds 
if  the  conveyance  was  fraudulent  as  to  them. 


SECT.  I.]  HAGERMAN   V.   BUCHANAN.  203 

an  elaborate  review  of  the  course  of  judicial  sentiment  in  this  State,  it 
was  decided  that,  in  respect  to  debts  existing  at  the  date^f  a  voluntary 
conveyance,  the  deed  was  void  by  force  of  the  statute  relating  to  frauds 
and  perjuries.  Against  the  attack  of  a  creditor  belonging  to  this  class, 
neither  the  motive  which  induced  the  deed,  nor  the  solvency  of  the 
grantor  at  the  time  of  its  execution,  nor  any  other  circumstance  which 
might  bear  upon  the  bona  fides  of  the  parties  to  the  conveyance,  is  im- 
portant. Fraud  is  the  legal  conclusion  arising  from  the  contemporane- 
ous concurrence  of  the  two  facts,  namely,  a  voluntary  deed  and  an 
existing  debt  due  by  the  grantor. 

In  respect  to  the  attitude  which  subsequent  creditors  bear  towards 
a  voluntary  conveyance,  there  has  not  been,  so  far  as  I  recall,  a  deliv- 
erance by  this  court.  But  the  sentiment,  both  judicial  and  professional, 
is  hardly  less  doubtful  upon  this  than  upon  the  former  question.  The 
rule  which  has  been  recognized  is,  that  a  voluntary  settlement  can  be 
attacked  by  a  subsequent  creditor  only  upon  the  ground  of  the  existence 
of  an  actual  intent  in  the  mind  of  the  parties  at  the  time  of  the  execu- 
tion of  the  conveyance  to  hinder,  delaj",  or  defraud  creditors  by  means 
of  the  deed.  .  .  . 

By  reason  of  [the]  recognitions  of  cases  in  which  the  distinction 
above  mentioned  has  been  formulated,  and  by  reason  of  the  rational 
grounds  upon  which  such  a  distinction  rests,  I  regard  the  complainant 
in  this  case  as  having  the  burden  of  showing  that,  at  the  time  the  con- 
veyance was  made,  there  existed  an  actual  intent  to  hinder  and  delay 
creditors.  This  conclusion  appears  the  more  reasonable  after  an  ex- 
amination of  the  cases  in  the  English  courts  dealing  with  this  subject. 
From  such  an  examination  it  appears  that,  while  there  has  been  con- 
siderable fluctuation  in  judicial  sentiment  in  respect  to  the  attitude  of 
prior  creditors  who  attack  a  voluntary  conve}'ance,  there  is  little  or 
none  in  respect  to  the  posture  of  subsequent  creditors.  As  to  the  latter 
of  the  two  classes  of  creditors,  the^rule  has  been  quite  uniform,  that 
an  actual  fraudulent  intent  to  defraud  some  creditor  must  be  proved. 

In  an  attack  upon  such  a  conveyance  by  a  subsequent  creditor  it  is 
true  that  the  fact  that  there  were  pre-existing  debts  has  always  been 
considered  more  or  less  important  in  determining  the  existence  of  a 
fraudulent  intent.  Different  equity  judges  have  accorded  to  the  exist- 
ence of  such  debts  different  degrees  of  probative  force,  and  have  raised 
from  the  fact  of  their  existence  certain  indisputable  presumptions,  but 
the  line  of  adjudications  is  opposed  to  the  notion  that  the  existence  of 
a  prior  debt  of  any  amount  raises  a  conclusive  presumption  that  a 
voluntary  conveyance  is  fraudulent  as  against  the  attack  of  a  subse- 
quent creditor.  Majr  Fraud.  Con.,  64. 

The  rule  laid  down  by  Chancellor  Kent  and  Judge  Washington  is  not 
only  simple,  but  equitable. 

A  conclusive  presumption  against  a  voluntary  conveyance  should  be 
raised  in  respect  to  those  debts  which  it  may  be  presumed  were  incurred 
upon  the  faith  of  the  ownership  of  the  property  conveyed. 


204  HAGERMAN  V.  BUCHANAN.  [CHAP.  IV. 

It  is  therefore  inequitable  that  the  debtor  should  be  permitted  to  give 
away  such  property  at  the  expense  of  a  pre-existing  creditor,  whether 
the  intention  be  good  or  otherwise.  But  as  to  creditors  who  become 
such  without  any  possible  inducement  arising  from  such  ownership,  no 
such  conclusive  presumption  should  arise.  No  equitable  consideration 
requires  it ;  and,  besides,  if  such  a  rule  be  adopted,  no  settlement  could 
be  made  which  would  not  be  a~t  the  mercy  of  the  grantor  during  his 
lifetime.  The  power  to  incur  debts  would  be  a  power  to  subject  the 
property  to  a  liability  for  their  payment  at  anytime.  So,  as  already 
remarked,  equitable  considerations,  as  well  as  the  weight  of  authority,  are 
in  favor  of  the  rule  that  an  actual  intent  to  defraud,  arising  from  all  the 
circumstances  surrounding  the  transaction,  must  be  proved  before  a 
voluntary  conveyance  will  be  decreed  void  at  the  suit  of  a  subsequent 
creditor. 

An  observation  seems  appropriate  in  respect  to  the  legal  terms  which 
are  employed  in  dealing  with  these  two  classes  of  cases.  Void  volun- 
tary conveyances,  when  spoken  of  in  respect  to  either  class  of  creditors, 
are  styled  fraudulent,  but  as  to  the  former  class  there  is  said  to  be  legal 
fraud,  and  as  to  the  latter  class  actual  fraud. 

There  is  force  in  the  remark  of  Mr.  Bigelow,  that  the  term  "legal 
fraud"  is  a  misnomer.  The  word  "fraud"  implies  moral  turpitude. 
When  a  transaction  is  voided  by  the  statute  without  respect  to  the  mo- 
tive which  induced  it,  but  upon  considerations  of  policy  only,  it  is  un- 
lawful and  not  fraudulent.  To  style  it  fraudulent,  whether  the  fraud  be 
legal  or  otherwise,  may  fix  an  unmerited  stigma  upon  the  party  to  the 
transaction.  A  more  just  and  appropriate  appellation  to  appty  to  con- 
veyances of  the  former  class  would  be  simply  unlawful,  while  the  term 
"  fraudulent  "  would  still  properly  be  applicable  to  the  latter  class  of 
conveyances. 

The  question  of  fact  remains  to  be  considered,  whether  there  was  an 
intention  existing  in  the  mind  of  the  parties  to  the  present  conveyance  to 
hinder  and  delay  creditors,  which  induced  the  execution  of  the  deed. 
In  the  first  place,  the  facts  proved  show  that  that  conveyance  was  volun- 
tary only  in  respect  to  a  slight  proportion  of  the  value  of  the  property 
sold.  The  wife,  at  the  time  of  the  conveyance,  was  a  creditor  of  her 
husband.  According  to  the  testimony,  the  lot  sold  was  worth  about 
$2,000.  Mr.  Hagerman  says  the  house,  outhouses,  barns,  and  fences 
cost  $2,500.  The  whole  property  was  worth  from  $4,500  to  $5,000. 

The  claims  of  the  wife  against  her  husband  were  the  following:  She 
had  owned  property  in  Brooklyn  before  she  and  her  husband  removed 
thence  to  Asbury  Park.  In  1876,  she  sold  this  property,  upon  which 
there  was  a  mortgage  for  $5,000  for  the  sum  of  $7,400.  The  balance, 
amounting  to  $2,400,  she  loaned  to  her  husband.  He  gave  her  a  mort- 
gage to  secure  this  loan,  with  the  interest  thereon,  amounting  together 
to  the  sum  of  $2,814.  There  was  upon  this  property,  upon  which  the 
mortgage  was  given,  another  mortgage  of  $600,  which  mortgage  she 
paid  from  the  proceeds  of  some  building  and  loan  association  stock 


SECT.  L]  HAGERMAN   V.    BUCHANAN.  205 

which  she  owned.  If  interest  be  allowed  her  on  her  mortgage  from 
December  6,  1879,  to  July  17,  1883,  it  would  amount  tp  $610  more. 
There  is  nothing  in  the  case  to  show  that  she  should  not  be  entitled  to 
interest,  as  would  any  other  mortgagee. 

It  is  true  that  she  lived  in  the  house,  but,  nevertheless,  it  was  the 
home  of  her  husband,  and  it  was  her  home  because  it  was  his  home. 
She  cannot  be  regarded  as  a  mortgagee  in  possession.  The  husband 
owned  the  legal  title  and  was  himself  in  possession  of  the  property. 

Nor  does  the  fact  that  she  took  in  boarders  and  received  compen- 
sation therefor  change  this  condition  of  affairs.  She  says  that  she 
expended  the  money  so  received  in  the  care  and  reparation  of  the 
property.  But  if  this  be  not  so,  it  would  not  affect  the  position  of 
the  husband  as  the  head  of  the  famih-  in  possession,  for  if  she  took  the 
proceeds  of  the  boarders  it  was  the  proceeds  of  her  own  labor,  which 
the  husband  had  the  right  to  permit  her  to  appropriate.  Peterson  v. 
Mulford,  7  Vr.  481  ;  Luse  v.  Jones,  10  Vr.  707. 

Indeed,  the  reception  of  boarders  seems  to  have  been  a  mere  incident  of 
the  housekeeping,  and  in  no  way  diminished  the  value  of  the  use  of  the 
property  to  Mr.  Hagerman,  but  probably  diminished  the  housekeeping 
expenses  which  would  otherwise  have  fallen  legally  upon  him.  So  I  re- 
gard the  amount  of  the  indebtedness  of  the  husband  to  the  wife  as 
reaching  to  the  sum  of  $4,000. 

I  place  the  value  of  the  house  from  $4,500  to  $5,000,  and  I  doubt  if 
it  would  have  brought  more  than  the  latter  sum  in  the  market.  So,  the 
difference  between  the  wife's  claim  and  the  value  of  the  property  which 
she  received  is  not  great. 

But  there  is  another  fact  which  still  further  reduces  the  amount  of 
this  difference:  the  wife  had  her  inchoate  right  of  dower  in  the  prop- 
erty, the  value  of  which,  of  course,  could  not  be  applied  to  the  payment 
of  her  husband's  creditors.  The  fact  of  this  encumbrance  upon  the 
propert}',  in  some  degree,  diminishes  its  salable  value.1  So,  1  think  it 
appears  true,  as  I  have  already  remarked,  that  the  voluntary  element 
in  this  transaction  is  small  relative  to  the  entire  value  of  the  property, 
and  this  is  a  material  feature  in  solving  the  question  whether  the  con- 
veyance was  fraudulent. 

The  point  strongly  insisted  upon  b}-  the  counsel  for  the  complainants 
was,  that  it  appeared  that  on  the  day  the  deed  was  given,  Mr.  Hager- 
man entered  into  a  partnership.  He  became  a  member  of  the  firm  of 
J.  C.  Farr  &  Co.  He  gave  for  his  interest  in  the  firm  two  promissory 
notes  of  $7,500  each,  both  amounting  to  $15.000.  It  appears  that  this 
firm  became  insolvent  in  three  or  four  months  thereafter.  It  is  argued 
that  this  shows  that  Mr.  Hagerrnan  was  entering  upon  a  hazardous  en- 
terprise, and  that  this  deed  was  made  to  place  his  property  beyond  the 
reach  of  future  creditors. 

1  If  creditors  set  aside  a  deed  as  fraudulent  the  right  of  dower  attaches  again,  even 
though  the  wife  bad  released  it.  Creditors  have  only  the  right  to  restore  the  statui 
quo  before  the  fraudulent  transfer.  Bigelow,  Fraudulent  Conv.  61 ;  Bump,  Fraudulent 
Conv.,  §  478. 


206  HAGEKMAN    V.   BUCHANAN.  [CHAP.  IT. 

Now,  it  is  true  that  the  fact  that  a  person  has  entered  into  a  hazard- 
ous business,  or  engaged  in  a  speculative  enterprise,  at  or  soon  after 
the  execution  of  a  voluntary  conveyance,  is  strong  evidence  of  a  fraudu- 
lent intent.  It  evinces  a  desire  to  reap  the  benefit  for  himself  if  suc- 
cessful, and  escape  responsibility  if  unlucky.  Nevertheless,  each  case 
must  stand  upon  its  own  footing,  and  no  legal  rule  can  be  adopted  as  to 
the  quantity  of  proof  or  the  particular  complexity  of  facts  which  will 
annul  a  conveyance  upon  this  ground.  The  character  of  the  business, 
the  degree  of  pecuniary  hazard  incurred,  the  amount  of  property  remain- 
ing in  the  grantor,  the  value  of  the  property  conveyed,  the  acts  and 
words  occurring  coincidently  with  the  transaction,  are  to  be  viewed  to- 
gether in  solving  the  question  of  fraudulent  intent.1 

Now,  viewing  these  transactions  together,  I  do  not  think  such  an  in- 
tent has  been  proved.  I  think  that  Mr.  Hagerman  inquired,  as  he  says 
he  did,  particularl}*  about  the  business  of  Farr  &  Co.,  and  that  he  tried 
to  be  careful  not  to  involve  himself  in  a  precarious  business. 

I  think  it  was  only  when  he  was  convinced  by  the  persuasions  of  Mr. 
Farr  that  it  was  entirely  safe,  and  that  the  amount  of  his  notes  would 
be  paid  out  of  the  proceeds,  that  he  entered  into  the  business.  He  says 
it  was  understood  that  the  old  firm  had  assets  to  the  amount  of  $40,- 
000,  and  that  the  liabilities  which  the  new  firm  assumed  were  only 
$15,000  or  $20,000.  Although  in  fact  the  business  was  risk}',  as  the 
result  disclosed,  as  Hagerman  understood  it  at  the  time  he  became  con- 
nected with  it,  it  did  not  so  present  itself.  He  undoubtedly  wished  to 
place  his  wife  in  a  position  of  security,  as  she  had  frequently  requested. 
But  this  is  the  object  of  every  settlement.  She  had  no  security  for  the 
$600.  Taking  into  consideration  the  fact  that  he  says  that  he  had 
$1,800  in  bank  and  a  lot  worth  $600,  that  the  voluntary  elements  in 
the  convej'ance  are  so  small,  and  that  he  seems  to  have  been  led  to 
believe  that  the  business  he  afterwards  engaged  in  was  entirely  safe, 
I  do  not  think  it  proved  that  the  conveyance  to  his  wife  was  induced 
by  a  fraudulent  Intent  to  hinder  and  delay  creditors. 

The  decree  below  should  be  reversed. 

Decree  unanimously  reversed. 

1  Bigelow  in  his  work  on  Fraud,  II.  112,  regards  a  conveyance  made  immediately 
before  embarking  upon  a  hazardous  business  as  necessarily  or  constructively  fraudu- 
lent. Though  in  such  a  case  there  is  always  strong  evidence  of  fraud,  the  question 
seems  one  of  fact  in  every  case.  Minzesheimer  i?.  Doolittle,  56  N.  J.  Eq.  206,  230  ; 
Todd  v.  Nelson,  109  N.  Y.  316  ;  Williams  v.  Davis,  69  Pa.  21 ;  Harlan  v.  Maglaugh- 
lin,  90  Pa.  293,  297 ;  Sommermeyer  v.  Schwartz,  89  Wis.  66.  See  also  Schreyer  v. 
Scott,  134  U.  S.  405;  Gable  v.  Columbus  Cigar  Co..  140  Ind.  563 ;  Neuberger  v.  Keim, 
134  N.  Y.  35 ;  Re  Foss,  147  Fed.  790. 


SECT.  I.]  STRATTON   V.   EDWAEDS.  207 


STRATTON   v.   EDWARDS. 

MASSACHUSETTS   SUPREME   JUDICIAL  COURT,  MARCH  21-OcTOBER  19, 

1899. 

[Reported  in  174  Massachusetts,  374.] 

MORTON,  J.  The  conveyance  in  question  was  made  about  a  month 
before  Caroline  G.  Mussey  was  adjudged  insolvent  on  her  own  petition, 
and  at  a  time  when  she  was  owing  more  than  she  could  pa}".  Subse- 
quent to  the  filing  of  the  bill  Edward  W.  Mussey,  husband  of  said 
Caroline,  was  admitted  as  a  party  defendant,  and  filed  an  answer. 
The  case  was  heard  by  a  justice  of  the  Superior  Court,  and  comes  here 
on  his  report  of  the  facts  and  of  his  findings.  There  was  no  decree. 

The  questions  are,  first,  whether  the  property  which  the  said  Caroline 
conve}*ed  was  held  by  her  upon  a  valid  trust  for  her  husband,  and, 
second,  whether  if  there  was  an  element  of  trust  in  her  holding  of  the 
property  this  court  will  uphold  and  enforce  the  trust  as  against  her 
creditors.  It  appears  that  the  property  in  question  originally  belonged 
to  the  husband,  and  consists  of  two  parcels  of  real  estate.  The  first  is 
a  dwelling-house  and  lot  on  Warren  Avenue,  Boston,  occupied  by  Mr. 
and  Mrs.  Mussey  as  a  home,  and  was  conveyed  by  him  to  her  through 
a  third  part}',  without  consideration,  in  1883.  The  second  is  a  store 
on  Cornhill,  and  was  conveyed  to  her  in  the  same  manner,  without 
consideration,  in  1890.  The  legal  title  to  both  parcels  remained  in  her 
till  the  conveyance  which  is  the  subject  of  this  suit. 

The  presiding  justice  found  that  "  at  the  time  of  this  conveyance  [of 
the  Cornhill  property]  and  in  accordance  with  certain  oral  statements 
made  by  him  ["Mr.  Mussey]  to  Mrs.  Mussey,  she  wrote  in  pencil  a 
statement  in  the  nature  of  a  declaration  of  trust,  which  on  December 
6,  1890,  she  copied  in  ink  and  signed  with  her  own  hand."  This  state- 
ment, as  the  presiding  justice  also  found,  was  taken  by  Mr.  Mussey, 
and  u  had  since  remained  with  other  papers  in  the  deposit  vault  box, 
to  which  he  and  Mrs.  Mussey  had  access."  The  material  part  of  this 
declaration  is  as  follows:  "145  Warren  Ave.,  Boston,  Mass.,  Decem- 
ber 6th,  1890.  December  3d, -1890,  Ned  [Mr.  Mussey]  transferred  a 
mortgage  to  me,  also  the  store  in  Cornhill  he  deeded  to  me,  both  to  be 
held  in  trust  for  him  by  me  just  the  same  as  I  hold  this  house  we  arc 
now  living  in,  to  be  held  for  him  in  trust  by  me.  He  can  sell  it  or  do 
just  the  same  with  it  as  before,  as  it  is  his  just  the  same."  Then  follow 
statements  that  it  [the  memorandum]  was  made  at  his  request,  as  he 
was  not  satisfied  with  the  pencil  memorandum,  and  that  she  was  going 
to  ask  him  to  put  it  in  the  box  at  the  safety  vault,  and  that  in  deference 
to  his  request  "  to  write  it  on  something  I  could  always  find  it,"  she 
had  written  it  on  something  that  she  should  always  keep.  The  presid- 
ing justice  also  found  that  Mrs.  Mussey  sent  to  her  mother  a  letter,  of 


208  STRATTON  V.   EDWARDS.  [CHAP.  IV. 

which  the  material  portion  is  as  follows :  "  Boston,  Dec.  4th,  1890. 
.  .  .  Yesterday  he  [Mr.  Musse}7]  deeded  the  store  in  Cornhill  to  me  to 
hold  in  trust  for  him,  only  it  does  not  make  it  any  the  more  mine  than 
it  did  before,  you  understand,  for  he  can  take  it  back  or  sell  it  at  his 
pleasure  same  as  before.  ...  In  fact,  it  is  just  the  same  as  he  holds 
the  house,  only  deeded  to  me  to  hold  for  him."  We  think  that  these 
statements  in  the  writing  under  date  of  December  6,  1890,  and  in  the 
letter  of  December  4,  1890,  constitute  a  valid  and  sufficient  declaration 
of  trust  on  the  part  of  Mrs.  Musse}7.  Arms  v.  Ashley,  4  Pick.  71  ; 
Montague  v.  Hayes,  10  Gray,  609;  Barrell  v.  Jo}',  16  Mass.  221; 
Urann  v.  Coates,  109  Mass.  581  ;  Faxon  v.  Folvey,  110  Mass.  392; 
Kendrick  v.  Ray,  173  Mass.  305;  Gardner  v.  Rowe,  5  Kuss.  258. 

The  plaintiffs  contend,  however,  that  the  conveyances  were  made  by 
Mussey  with  intent  to  defraud  his  creditors,  that  the  trust  was  unlawful 
in  its  creation,  and  that  a  court  of  equity  will  not  lend  its  aid  to  uphold 
or  enforce  it.  There  are  several  answers  to  this  contention.  In  the 
first  place,  the  presiding  justice  has  not  found,  and  we  do  not  think 
that  it  follows  from  the  facts  that  he  has  found,  that  the  conveyances 
made  by  Mussey  constituted  a  fraud  upon  the  insolvent  laws  or  upon 
his  creditors,  or  that  Mussey  had  reasonable  cause  to  believe  himself 
insolvent  when  the  conve}-ances  were  made.  On  the  contrary,  in 
regard  to  the  last  proposition  the  presiding  justice  found  that  at  the 
time  of  each  conveyance  if  Mussey  "  could  have  realized  a  fair  market 
value  on  the  stocks  which  were  then  being  carried  for  him,  he  could 
have  paid  his  debts  in  full,  without  resorting  to  or  realizing  upon  the 
said  real^estate,  although  in  fact  he  did  not  so  realize  upon  them."  So 
far,  therefore,  as  existing  creditors  were  concerned  he  well  may  have 
supposed  himself  at  the  time  of  each  conveyance  to  be  solvent,  and 
may  have  been  in  fact  solvent.  At  any  rate,  in  view  of  this  finding,  it 
cannot  be  said  that  the  conveyances  were  invalid  as  regarded  existing 
creditors,1  or  in  fraud  of  the  insolvent  laws.  Bridges  v.  Miles,  152 
Mass.  249;  Mundo  v.  Shepard,  166  Mass.  323;  Jaquith  v.  Massachu- 
setts Baptist  Convention,  172  Mass.  439.  The  presiding  justice  further 
found  that  at  the  time  of  both  of  the  conveyances  "  he  [Mussey]  had 

1  In  Day  v.  Cooley,  118  Mass.  524,  527,  the  court  said:  — 

"  This  is  not  a  case  of  voluntary  conveyance  which  would  be  good  against  subse- 
quent creditors  if  not  tainted  with  any  fraud.  The  jury  have  found  that  the  convey- 
ance to  the  tenant  was  made  with  a  fraudulent  purpose.  The  instruction  requested  is 
based  upon  the  assumption  that  the  only  ground  upon  which  subsequent  creditors  can 
impeach  a  conveyance  by  their  debtor,  is  that  it  is  made  with  the  specific  intent  to 
contract  future  debts  to  them  and  avoid  the  payment  of  the  same.  This  is  not  the  law. 
It  is  well  settled  that  if  a  debtor  makes  a  conveyance  with  the  purpose  of  defrauding 
either  existing  or  future  creditors,  it  may  be  impeached  by  either  class  of  creditors,  or 
by  an  assignee  in  insolvency  or  bankruptcy  who  represents  both.  Parkman  v.  Welch, 
19  Pick.  231  ;  Thacher  v.  Phinney,  7  Allen,  146;  Winchester  v.  Charter,  12  Allen, 
606;  Wadsworth  v.  Williams,  100  Mass.  126.  As  it  was  proved  in  this  case  that  the 
grantor  had  an  actual  fraudulent  design  which  was  participated  in  by  the  grantee,  it 
is  immaterial  whether  the  demandants  are  to  be  regarded  as  subsequent  or  existing 
creditors  as  to  the  conveyance." 


SECT.  I.]  STRATTON   V.   EDWARDS.  209 

been  losing  heavily  and  was  troubled  over  his  financial  affairs,  and 
that  these  conveyances  were  made  by  him  with  the  actual  purpose  and 
intention  of  putting  said  real  estate  beyond  the  hazards  and  risks  of  the 
said  business  in  which  he  was  engaged,  and  to  protect  it  from  future 
creditors,  and  to  secure  it  for  the  benefit  of  himself,  and  that  thereafter 
he  continued  in  said  business  until  all  his  propert}-,  except  such  in- 
terest, if  any,  as  he  had  in  said  parcels  of  real  estate,  had  been  lost." 
But  this  finding  does  not  require  or  warrant  the  conclusion  that  the 
conveyances  were  fraudulent  and  void  as  to  future  creditors.  In  order 
to  have  that  effect  it  must  appear  that  the  conveyances  were  made 
with  "an  intent  on  the  part  of  the  grantor  to  contract  debts,  and  a 
design  to  avoid  payment  of  such  debts  by  the  conveyance  of  his  prop- 
erty" (Winchester  v.  Charter,  12  Allen,  606,  611),  and  to  establish 
such  an  intent  it  is  not  enough  to  show  that  the  grantor  had  a  general 
purpose  to  secure  the  property  from  the  hazards  of  future  business  and 
the  claims  of  future  creditors.  But  it  must  appear  that  at  the  time  of 
the  conveyance  he  had  an  actual  intent  to  contract  debts,  and  a  pur- 
pose to  avoid  the  payment  of  them  by  the  conveyance.  As  already 
observed,  there  is  nothing  in  this  case  which  requires  or  warrants  such 
a  conclusion  from  the  finding  of  the  court.  Winchester  v.  Charter  and 
Jaquith  v.  Massachusetts  Baptist  Convention,  ulri  supra. 

But,  further,  this  proceeding  has  been  instituted  on  behalf  of  credit- 
ors of  Mrs.  Mussey,  not  on  behalf  of  creditors  of  her  husband.  It  does 
not  appear  that  he  has  an}-  creditors,  or  that,  if  he  has,  they  are  dis- 
satisfied with  what  has  been  done.  It  is  well  settled  that  conveyances 
in  fraud  of  creditors  are  good  as  between  the  parties  to  them,  and, 
except  as  to  creditors,  will  be  upheld.  Stillings  v.  Turner,  153  Mass. 
534  ;  Pierce  v.  Le  Monier,  172  Mass.  508. 

In  making  the  conveyance  which  she  did  at  her  husband's  request, 
Mrs.  Mussey  was  only  carrying  into  effect  the  trust  upon  which  she 
held  the  propert}-,  and  we  do  not  see  how  her  creditors  have  any  just 
ground  of  complaint.  It  is  conceded  that  her  assignees  can  take  no 
better  title  than  she  had,  and,  as  we  understand  it,  that  her  creditors 
have  no  right  to  the  property  if  it  was  lawfull}'  held  b}'  her  in  trust  for 
her  husband. 

Declarations  made  by  her  as  to  her  title,  in  his  absence  and  without 
his  knowledge  or  authority,  cannot  bind  him,  and  we  discover  nothing 
in  his  conduct  which  can  operate  by  w&y  of  estoppel  to  prevent  him 
from  setting  up  his  right  to  the  property. 

The  result  is  that  we  think  that  the  bill  should  be  dismissed. 

tio  ordered.1 

1  See  also  Burke  v.  Dorey,  208  Mass.  45 ;  Gately  v.  Kappler,  209  Mass.  426. 


210  ATJLTMAN   AND   TAYLOR   CO.   V.   PIKOP.  [CHAP.  IV. 


AULTMAN  AND  TAYLOR  CO.  v.  OLE  A.  PIKOP  ET  AL. 
MINNESOTA  SUPREME  COURT,  JANUARY  K)-FEBRUARY  17,  1894. 

[Reported  in  56  Minnesota,  531.] 

APPEAL  by  plaintiff,  Aultman  and  Taylor  Co.,  a  corporation,  from  a 
judgment  of  the  District  Court  of  Becker  County,  D.  B.  SEARLE,  J., 
entered  September  20,  1893. 

Samuel  H.  Dalen  owned  the  northeast  quarter  of  Section  fourteen 
(14)  T.  148,  R.  42,  in  Becker  County.  The  east  half  was  his  home- 
stead, on  which  he  resided  with  his  family.  On  December  6,  1883,  he 
and  his  wife  Kjerste  H.  Dalen  executed  a  mortgage  on  the  whole  quar- 
ter section  to  Johnson  Land  and  Mortgage  Co.,  a  corporation,  to  secure 
the  payment  of  $660  borrowed  of  it  that  day  by  him.  On  July  30, 
1887,  Dalen  and  wife  conveyed  the  land  to  Anders  O.  Pikop,  the  wife's 
brother,  subject  to  the  mortgage,  and  he  and  his  wife  recouvej-ed  it, 
August  10,  1889,  to  Dalen's  wife,  Kjerste  H.  Dalen. 

On  November  15,  1888,  Kjerste  H.  Dalen  and  husband  conveyed  the 
land  to  her  nephew,  the  defendant  Ole  A.  Pikop,  subject  to  the  mort- 
gage, on  which  was  then  due  over  $700.  He  paid  off  the  mortgage 
December  8,  1888,  b}-  making  a  new  one  on  the  land  for  $690  to  the 
same  Johnson  Land  &  Mortgage  Co.  On  June  19,  1891,  the  plaintiff 
recovered  a  judgment  against  Samuel  H.  Dalen  and  Kjerste  H.  Dalen 
for  $441.61  upon  a  debt  incurred  prior  to  the  deed  to  Anders  O.  Pikop. 
Execution  was  issued  and  returned  unsatisfied. 

On  November  28,  1891,  the  plaintiff  commenced  this  action  against 
Ole  A.  Pikop,  Samuel  H.  Dalen,  and  Kjerste  H.  Dalen  to  set  aside  the 
deeds  claiming  they  were  all  made  and  taken  with  intent  to  hinder,  de- 
la}-,  and  defraud  the  creditors  of  Dalen  and  wife.  Ole  A.  Pikop  alone 
answered.  Specific  questions  of  fact  were  submitted  to  a  jur}-,  and  in 
answer  thereto  they  found  the  conveyances  were  made  without  con- 
sideration and  to  hinder,  delay,  and  defraud  the  creditors  of  Samuel  H. 
Dalen  ;  that  the  east  half  of  the  land  was  his  homestead,  and  worth 
$1,800;  that  the  value  of  the  west  half  was  but  $700.  The  court  ac- 
cepted the  verdict  and  ordered  judgment  for  defendants,  dismissing  the 
action  on  the  merits  with  costs.  Judgment  was  so  entered  and  plain- 
tiff appeals. 

Spooner  <fe  Taylor,  for  appellant. 

J.  W.  Reynolds,  for  respondent. 

GILFILLAN,  C.  J.  This  case  comes  within  Baldwin  v.  Rogers,  28 
Minn.  544  (11  N.  W.  77)  ;  Horton  v.  Kelly,  40  Minn.  193  (41  N.  W. 
1031);  and  Blake  v.  Boisjoli,  51  Minn.  296  (53  N.  W.  637),  — in 
which  it  was  held  that  a  creditor  is  not  defrauded  by  his  debtor  con- 
veying real  estate  incumbered  beyond  its  value,  and  that  the  convej-- 
ance  is  not  void,  though  made  with  intent  to  defraud  such  creditor,  — 
and  must  be  controlled  by  those  decisions.  Judgment  affirmed. 


SECT.  I.]  AT7LTMAN    AND   TAYLOR   CO.    V.   PIKOP.  211 

CANTY,  J.  I  dissent  from  the  opinion  of  the  majority  in  this  action. 
The  decision  of  the  majority  requires  every  one  of  the  following  prop- 
ositions to  sustain  it :  — 

To  sustain  it,  it  must  be  held,  as  a  presumption  of  law :  (1)  That  the 
mortgage  will  never  be  paid.  (2)  That  it  will  be  foreclosed.  (3)  That 
the  mortgagor  will  exercise  his  right  to  compel  the  mortgagee  to  sell 
the  unexempt  part  of  the  mortgaged  premises  first.  (4)  That  such 
unexempt  part,  when  so  sold,  will  sell  for  its  full  value.  (5)  That  such 
unexempt  part  will  never  rise  in  value  during  the  year  between  the  time 
of  sale  and  the  time  of  the  expiration  of  redemption.  (6)  That  the 
judgment  creditor  will  not  be  able  to  sell  on  execution  sale  any  such 
length  of  time  before  the  mortgage  foreclosure  sale  as  to  give  the  pur- 
chaser at  such  execution  sale  any  beneficial  or  valuable  enjo3'ment  of 
the  premises  after  the  time  to  redeem  from  the  execution  sale  has  ex- 
pired, and  before  the  time  to  redeem  from  foreclosure  sale  will  expire. 
(7)  It  must  be  further  held,  as  a  proposition  of  law,  that  the  statutory 
right  of  a  judgment  creditor  to  redeem  from  the  foreclosure  of  a  prior 
mortgage  is  not  a  valuable  right,  which  the  courts  will  either  recognize 
or  protect.  It  seems  to  me  that  none  of  these  propositions  is  good  law, 
or  well  founded. 

It  is  very  seldom  that  any  one  ever  bids  at  foreclosure  or  execution 
sales,  except  the  creditor  at  his  own  sale ;  and  when  he  bids  he  takes 
into  consideration  the  amount  of  his  claim,  and  the  amount  of  his  other 
security,  as  much  as  he  does  the  value  of  the  property  on  which  he  bids. 
A  creditor  whose  security  is  insufficient  will  always  bid  more  than  one 
whose  security  is  ample.  When  one  part  of  the  mortgaged  premises  is 
a  homestead,  the  other  part  unexempt,  and  the  amount  secured  by  the 
mortgage  onl}-  equals  the  value  of  the  latter  part,  the  mortgagee  will 
not  bid  as  much  for  such  unexempt  part  as  a  subsequent  judgment 
creditor,  having  no  other  securit}7,  will  bid  for  the  same  at  his  own  exe- 
cution sale. 

If  the  premises  are  not  redeemed  by  the  owner,  the  real  bidding  takes 
place  between  the  subsequent  lien  holders  at  the  time  for  them  to  re- 
deem from  the  sale  under  the  prior  lien.  But  the  decision  of  this  court 
denies  this  right  in  many  cases  such  as  this,  by  refusing  to  declare  the 
subsequent  judgment  a  lien  on  the  unexempt  propert}'. 

If  it  is  a  sufficient  defense,  in  this  case,  that  the  unexempt  property 
fraudulently  transferred  is  incumbered  for  all  it  is  worth,  why  is  it  not 
a  sufficient  defense  in  every  action  brought  by  a  judgment  creditor  to 
set  aside  a  fraudulent  transfer  of  property?  It  should  certainly  be  held 
that  the  creditor  has  a  right  to  try  the  question  of  value  at  a  public 
sale,  and  not  before  a  jury.1 

1  Garrison  v.  Monaghan,  33  Pa.  232,  contra.  See  Mittleburg  v.  Harrison,  1 1  Mo. 
Ap|i.  136. 

A  mortgagor,  though  in  embarrassed  circumstances,  may  unquestionably  surrender 
the  mortgaged  property  to  the  mortgagee  in  satisfaction  of  the  debt  if  the  property  ia 
worth  no  more  than  the  amount  of  the  debt.  Williams  v.  Kobbins,  15  Gray,  590  i 


212     MERCHANTS'  AND  MINERS'  TRANS?,  co.  v.  BORLAND.     [CHAP.  iv. 


THE   MERCHANTS'   AND   MINERS'   TRANSPORTATION 
COMPANY   v.   BORLAND. 

NEW  JERSEY  COURT  OF  CHANCERY,  FEBRUARY  TERM,  1895. 
[Reported  in  53~New  Jersey  Equity,  282.] 

ON  demurrer  to  bill. 

The  defendants  are  the  widow  and  four  children  of  Robert  B.  Bor- 
land, late  a  resident  of  this  State,  who  died  insolvent  July  15,  1893. 
The  complainant  is  a  creditor  of  the  deceased  by  judgment  recovered 
in  the  State  of  New  York,  and  the  object  of  the  bill  is  to  compel  the 
defendants  to  pay  complainants'  judgment  out  of  certain  moneys 
received  by  them  from  certain  life  insurance  companies,  in  payment  of 
certain  policies  of  insurance  taken  out  by  the  deceased  upon  his  life 
for  the  benefit  of  his  wife  and  children,  the  annual  premiums  upon 
which  were  paid  by  him  out  of  his  own  moneys  mostly  after  the 
recoveiy  of  complainant's  judgment. 

The  principal  question  raised  by  the  demurrer  is  the  general  one  as 
to  the  merits  of  complainant's  claim. 

More  specifically  stated,  the  facts  set  out  in  the  bill  and  admitted  by 
the  demurrer  are  as  follows  :  — 

On  November  11,  1886,  complainant  recovered  in  the  Supreme 
Court  of  New  York  a  judgment  against  Borland,  then  a  resident  of  New 
Jersey,  for  $6,309.54,  for  which  amount  Borland  was  then  indebted  to 
complainant.  No  part  of  this  indebtedness  has  ever  been  paid,  and 
the  whole,  with  interest,  still  remains  due.  Borland  died  July,  1893, 
insolvent  to  the  extent  of  ninet3*-seven  per  cent  of  his  indebtedness. 

1.  In  December,    1886,  after  the  recovery  of  complainant's  judg- 
ment, Borland  procured  from  the  Mutual  Benefit  Life  Association  of 
New  York  a  policy  upon  his  life  for  $5,000,  in  favor  of  his  four  chil- 
dren, defendants. 

2.  On  the  same  da\-  he  procured  from  the  same  company  a  like 
policy  for  $5,000,  in  favor  of  his  wife,  Louisa,  defendant. 

3.  In   1886,   and  after  incurring  the  indebtedness  to  complainant 
merged  in  the  judgment,  exact  date  not  given,  Borland  took  out  a  like 
policy  from  the  Mutual  Life  Insurance  Company  of  New  York  for 
$30,000,  in  favor  of  his  wife,  Louisa,  defendant. 

These  several  policies  were  subject  to  the  payment  of  certain  annual 
premiums,  the  amount  of  which  is  not  stated  in  the  bill,  but  it  is  there 
alleged  that  they  amount  to  over  $1,400  a  year,  and  were  paid  by  Bor- 
land out  of  his  own  means  and  money  up  to  his  death. 

4.  In  the  year  1890,  exact  date  not  given,  Borland  took  out  an- 
other policy  of  insurance  upon  his  life  from  the  Mutual  Life  Insurance 

Credle  v.  Carrawan,  64  N.  C.  422  ;  Cox  v.  Homer,  43  W.  Va.  786.  See  also  Living- 
ston  v.  Bruce,  1  Blatch.  318;  Coxe  v.  Hale,  8  B.  R.  562;  Catlin  v.  Hoffman,  9  B.  B. 
342,  where  it  was  held  that  such  a  transaction  was  not  a  preference. 


SECT,  i.]     MERCHANTS'  AND  MINERS'  TRANSP.  co.  v.  BORLAND.       213 

Company  of  New  York  for  $5,000,  in  favor  of  his  wife,  Louisa,  the 
annual  premium  upon  which  was  $293,  which  was  paid,  by  him  each 
year  until  he  died,  out  of  his  own  money  and  means. 

5.  In  the  year  1891,  exact  date  not  stated,  Borland  took  out  an- 
other policy  upon  his  life  from  the  Mutual  Life  Insurance  Company  of 
New  York  for  $5,000,  in  favor  of  his  wife,  the  annual  premium  upon 
which  was  $308,  which  was  paid  03*  him  to  the  company  out  of  his  own 
money  and  means  each  year  until  he  died. 

In  addition  to  the  foregoing  five  policies,  Borland  had  taken  out,  in 
1876,  from  the  Mutual  Life  Insurance  Company  of  New  York,  a  policy 
upon  his  life  for  $5,000,  in  favor  of  his  four  children  above  named,  the 
annual  premium  upon  which  was  $161,  which  was  paid  by  him  each 
year  up  to  his  death,  as  well  before  as  after  the  recovery  of  complain- 
ant's judgment,  out  of  his  own  means  and  money. 

At  his  death  two  of  his  children  were  minors,  and  letters  of  guardian- 
ship of  them  were  granted  by  the  surrogate  of  Hudson  County  to  his 
widow,  the  defendant  Louisa. 

The  bill  charges  that  these  annual  payments  of  premiums  were  so 
paid  by  Borland  for  the  purpose  of  placing  so  much  of  his  means  be- 
yond the  reach  of  his  creditors,  and  for  the  purpose  of  defrauding  the 
complainant,  and  that  he  during  the  whole  period  was  insolvent. 

The  bill  further  alleges  that  all  these  policies  have  been  paid  in  full 
—  those  in  favor  of  Mrs.  Borland  to  her  in  her  own  right,  those  in  favor 
of  the  children  in  part  to  her  as  guardian  and  in  part  to  those  who  were 
of  age. 

It  further  alleges  that  Borland  died  testate  of  a  will  by  which  he 
gave  his  wife  his  whole  estate  and  appointed  her  executrix ;  that  she 
proved  such  will  before  the  surrogate  of  Hudson  Count}*,  and  undertook 
the  burthen  of  its  execution  ;  that  he  left  no  real  estate  whatever,  and 
personal  estate  to  the  value  of  $1,350  only;  that  preferred  claims 
against  the  estate,  amounting  to  $878,  were  presented  to  the  executrix, 
and  other  claims  (whether  including  complainant's  or  not  is  not  dis- 
tinctly stated),  amounting  to  $13,457.72,  have  been  duly  presented, 
under  oath,  to  the  executrix,  so  that  the  estate  will  not  pay  above 
three  per  cent  of  the  general  indebtedness,  including  complainant's 
claim. 

Mrs.  Borland  is  made  a  party  defendant  as  executrix  as  well  as  indi- 
vidually, but  no  decree  is  prayed  against  her  as  executrix. 

Mr.  William  13.  Gillmore^  for  the  complainant. 

Mr.  Isaac  S.  Taylor,  for  the  defendants. 

PITNEY,  V.C.  There  is  no  mystery  or  charm  about  life  insurance. 
It  is  not  a  means  of  creating  wealth,  nor  yet  a  contract  of  mere  in- 
demnity, as  is  that  of  fire  and  marine  insurance.  It  is,  in  its  most 
usual  form,  simply  a  mode  of  putting  by  money  for  savings.  A  sum 
of  money  is  paid  half-yearly  or  yearly,  as  the  case  ma}'  be,  to  a  cor- 
poration, which  receives  and  invests  it  carefully,  and  adds  to  it  its 
yearly  earnings,  and,  in  consideration  of  such  payments,  agrees  to  pay 


214     MERCHANTS'  AND  MINERS'  TRANSP.  co.  v.  BORLAND.     [CHAP.  iv. 

the  party  insured,  or  such  other  person  as  may  be  named,  a  sum  cer- 
tain upon  his  death.  The  amount  so  agreed  to  be  paid  is  arrived  at 
by  taking  the  age  and  state  of  health  of  the  party  at  whose  death  the 
money  is  to  be  paid,  and  estimating  how  many  years  he  will  probably 
live.  This  is  arrived  at  by  consulting  what  are  called  the  "  Tables  of 
Mortality,"  viz.,  an  account  kept  for  a  great  number  of  consecutive 
years  of  the  ages  at  which  men  and  women  die,  and  taking  the  average 
of  all  such  ages.  By  this  means  the  probable  number  of  3'ears  an}' 
man  or  woman  of  a  given  age  and  of  ordinary  health  will  live  may  be 
arrived  at  with  reasonable  certainty.  Having  ascertained  this  chance 
of  life,  the  company  fixes  such  an  annual  rate  as  will,  with  accretions, 
at  the  time  of  the  death  of  the  party  insured,  amount  to  the  sum  agreed 
to  be  paid,  together  with  the  cost  of  investment,  care,  and  so  forth. 
Some  of  those  so  insured  will  live  longer  and  some  not  so  long  as  the 
tables  indicate  they  ought  to  live.  The  real  business  of  the  insurance 
company,  as  distinguished  from  that  of  any  other  investment  company 
or  ordinary  savings  bank,  is  to  collect  overpayments  from  those  who 
live  beyond  the  average  period  —  the  long-livers  —  and  to  pay  their 
proceeds  to  those  who  do  not  live  the  average  period  —  the  short-livers. 
This  distinction,  however,  does  not  alter,  in  legal  contemplation,  the 
intrinsic  character  of  the  transaction  between  the  insurer  and  assured, 
which  is  that  of  paying  money  to-day  in  expectation  of  its  repayment  at 
a  future  day,  either  to  the  part}'  paying  it  or  to  such  other  person  as 
he  or  she  may  name.  There  is,  and  can  be  in  law,  no  difference  be- 
tween the  payment  by  a  husband  of  a  stated  sum  of  money  at  stated 
periods  to  an  insurance  company,  upon  promise  to  pay  a  certain  sum 
at  the  death  of  the  payer,  to  his  wife,  and  the  deposit  by  the  husband 
of  alike  stated  sum,  at  like  stated  periods,  in  a  savings  bank,  to  the 
credit  of  the  wife.  Both  are  gifts  to  the  wife,  and  the  money  after- 
wards paid  by  the  savings  bank  or  insurance  company,  as  the  case  may 
be,  to  the  wife  or  her  personal  representatives,  is  nothing  more  than  a 
payment  to  her  of  the  money  previously  paid  to  it  by  the  husband, 
with  its  earnings  and  inci'ease. 

The  illustration  I  have  used  is  that  of  the  form  of  life  insurance,  so 
called,  in  most  common  use,  and  it  is  the  one  here  in  question.  But 
the  same  reasoning  applies  to  the  other  forms  of  life  insurance.  For 
instance,  if  the  premium  —  by  which  is  meant  the  cash  consideration 
paid  to  the  insurer — is  paid,  as  it  may  be,  all  at  once,  in  a  single 
down-payment,  and  the  insurer  agrees  to  pay  a  greater  sum  at  the 
death  of  the  assured,  it  is  a  mere  mode  of  placing  a  certain  sum  of 
money  at  interest,  to  be  repaid  at  death,  the  amount  of  interest  being 
fixed  by  the  probability  of  life  of  the  assured. 

The  case  presented,  then,  is  this :  A  debtor  owing  a  large  sum  of 
money  upon  a  judgment,  and  plainly  insolvent,  is  in  receipt  from  some 
source,  each  year,  of  money  and  means  belonging  to  himself,  over  and 
above  what  he  finds  necessary  or  proper  to  expend  for  current  expenses, 
to  the  amount  of  about  $1,500,  and  instead  of  devoting  it  to  the  paj7- 


SECT,  i.]     MERCHANTS'  AND  MINERS'  TRANS?,  co.  v.  BORLAND.        215 

ment,  pro  tanto,  of  his  debt,  he  makes  a  present  of  it  to  his  wife  and 
children  by  the  machinery  of  divers  policies  of  life  insurance,  with  the 
result  that,  at  his  death,  he  has  given  his  wife  in  premiums  enough  to 
pay  his  debt,  and  she  has  become  practically  rich  at  the  creditor's 
expense. 

This  statement  of  the  case  seems  to  me  to  decide  it.  The  old  maxim 
that  a  man  must  be  just  before  he  is  generous,  applies. 

I  am  unable  to  discover  any  principle  or  well-considered  authority 
upon  which  such  a  transaction  can  be  sustained  against  creditors.  To 
do  so  would,  as  it  seems  to  me,  be  to  run  counter  to  principles  so  well 
settled  and  familiar  as  hardly  to  require  recital.  A  husband  cannot 
settle  money  or  property  in  any  shape  upon  his  wife  while  he  is  in- 
debted. If  he  attempts  it  the  creditors  are  entitled  to  the  aid  of  this 
court  to  reach  the  property  so  settled,  in  whatever  form  it  may  be 
found. 

The  great  weight  of  authority  holds  that  payments  on  account  of  life 
policies  for  the  benefit  of  another  must  be  considered  as  made  in  fraud  of 
creditors.  Davis  v.  Wace,  1  Campb.  487  ;  Skarf  v.  Soulby,  1  McN.  &  G. 
360;  Jcnkyn  v.  Vaughan,  3  Drew.  419,  2  Jur.  N.  s.901,  25  L.  J.  Ch. 
338;  Stokoe  v.  Cowan,  29  Beav.  637,  7  Jur.  N.  s.  901,  30  L.J.  Ch. 
882  ;  Freeman  v.  Pope,  L.  R.  9  Eq.  Cas.  206,  5  Ch.  App.  536 ;  Taylor 
v.  Coenen,  L.  R.  1  Ch.  Div.  636. 

The  foregoing  were  all  cases  of  policies  taken  out  in  the  name  and 
for  the  benefit  of  the  party  whose  life  was  assured,  and  by  him  assigned 
to  a  beneficiar}'.  But  I  am  unable  to  perceive  any  difference  between 
such  a  case  and  that  of  a  policy  taken  out  in  the  first  instance  in  the 
name  and  for  the  benefit  of  a  third  party.  Take  the  case  of  a  policy 
issued  in  consideration  of  a  single  down-payment  If  a  debtor  invests 
a  sum  of  money  in  a  polic}'  for  a  certain  sum  payable  to  his  personal 
representatives  at  his  death,  and  then  assigns  that  policy  to  his  wife, 
that  is  an  indirect  mode  of  making  a  settlement  upon  her.  If  instead  of 
taking  the  policy  payable  to  his  personal  representative,  he  should  have 
it  made  payable  directly  to  his  wife,  that  seems  to  me  to  be  making  a 
direct  settlement  upon  his  wife.  It  is,  in  effect,  loaning  a  sum  of 
money  to  the  insurance  compan}*,  and  taking  the  contract  of  the  corn- 
pan}'  to  repay  it  with  a  fixed  interest  to  his  wife  at  his  death. 

[The  Vice-Chancellor  here  quoted  from  Holt  v.  Everall,  2  Ch.  D. 
206,  and  Fearn  v.  Ward,  80  Ala.  555]. 

It  is  hardly  necessary  to  state  that  it  is  settled  law  in  New  Jersey 
that  all  voluntary  gifts  are  conclusively  fraudulent  and  absolutely  void 
as  against  all  existing  creditors  without  regard  to  the  actual  intention 
of  the  donor.  Hasten  v.  Castner,  4  Stew.  Eq.  697,  701  etseq.\  Ar- 
nold y.  Hagerman,  18  Stew.  Eq.  186  ;  Gardner  v.  Kleinkc,  1  Dick. 
Ch.  Rep.  90. 

In  looking  at  the  American  authorities  it  must  be  borne  in  mind  that 
in  many  of  the  States  the  statutory  law  provides,  as  in  England  the  act 
just  referred  to,  that  husbands  may  insure  their  lives  for  the  benefit  of 


216     MERCHANTS'  AND  MINERS'  TRANSP.  co.  v.  BORLAND.     [CHAP.  iv. 

their  wives  or  children,  or  both,  and  that  the  wife  or  child  in  such  case 
shall  be  entitled  to  receive  the  proceeds  of  the  policy  against  the 
creditors  of  the  husband  and  father.  In  a  few  States  no  limit  is  placed 
upon  the  amount  which  a  husband  and  father  ma}', 'in  this  mode, 
abstract  from  his  business  or  earnings  and  settle  on  his  famity.  In 
most  of  the  States,  however,  the"  amount  is  limited,  as,  indeed,  common 
justice  requires  it  should  be,  to  a  sum  certain  in  each  year. 

In  New  York  —  the  only  State  except  our  own  in  which,  for  present 
purposes,  we  are  interested  —  it  is  fixed  at  $500  a  year. 

The  only  statute  in  New  Jersey  is  that  of  February  19,  1851  (Nix. 
Dig.  1868,  p.  548),  as  amended  by  the  act  of  1871  (P.  L.  of  1871, 
p.  25  ;  Rev.,  p.  640).  That  act  before  being  amended  provided  :  — 

"  1.  It  shall  be  lawful  for  any  married  woman,  by  herself  and  in  her 
name,  or  in  the  name  of  any  third  person,  with  his  assent  as  her  trustee, 
to  cause  to  be  insured  for  her  sole  use  the  life  of  her  husband,  for  anv 
definite  period,  or  for  the  term  of  his  natural  life  ;  and  in  case  of  her 
surviving  her  husband,  the  sum  or  net  amount  of  the  insurance  becom- 
ing due  and  payable  by  the  terms  of  the  insurance,  shall  be  payable  to 
her,  to  and  for  her  own  use,  free  from  the  claims  of  the  representatives 
of  her  husband  or  his  creditors  ;  but  such  exemption  shall  not  apply 
where  the  amount  of  premium  annually  paid  shall  exceed  $100. 

"2.  In  case  of  the  death  of  the  wife  before  the  decease  of  her  hus- 
band, the  amount  of  the  insurance  may  be  made  payable,  after  the 
death,  to  her  children  for  their  use,  and  to  their  guardian,  if  under 
age." 

As  amended,  the  last  clause  of  section  1  was  omitted. 

This  act  is  in  marked  contrast  with  most  of  those  of  other  States. 
That  of  Massachusetts  (Gen.  Stat.,  ch.  58,  62,  cited  in  99  Mass.  155), 
provides  that  "  the  policy  shall  be  good  whether  procured  b}-  herself, 
her  husband,  or  any  other  person."  That  of  Connecticut  provides  that 
any  policy  of  life  insurance  expressed  to  be  for  the  benefit  of  a  married 
woman  shall  inure  to  her  separate  estate,  but  if  the  annual  premiums 
exceed  $300,  the  amount  of  such  excess  shall  go  to  the  creditors  of  the 
person  pa}'ing  the  premium. 

The  New  York  act  more  nearly  resembles  ours.  In  fact,  it  is  pre- 
cisely  like  ours  until  you  come  to  the  last  clause  of  the  first  section  of 
our  act  as  originally  enacted.  That  clause,  as  above  quoted,  is  :  "  But 
such  exemption  shall  not  apply  where  the  amount  of  premium  annually 
paid  shall  exceed  $100."  The  New  York  act,  as  it  now  stands,  reads  : 

"  But  when  the  premium  paid  in  any  }-ear  out  of  the  property  or 
funds  of  the  husband  shall  exceed  $500,  such  exemption  from  such 
claims  shall  not  apply  to  so  much  of  said  premium  so  paid  as  shall  be 
in  excess  of  $500,  but  such  excess,  with  the  interest  thereon,  shall 
inure  to  the  benefit  of  his  creditors."  P.  L.  of  N.  Y.  1870,  ch.  277, 
cited  in  Stokes  v.  Amraerman,  121  N.  Y.  341,  342. 

This  statute  has  been  held  in  New  York  to  warrant  the  setting  aside 
by  a  husband  of  $500  a  year  for  the  benefit  of  his  wife.  Barry  v. 


SECT.  I.]  WARREN   V.   MOODY.  217 

Equitable  Life  Assurance  Society,  59  N.  Y.  587,  593.  And  in  Stokes 
v.  Ammerman,  supra,  it  was  held  that  all  beyond  $500  sL  year  must  go 
to  the  creditors. 

Acts  of  this  character  are,  properly  enough,  called  "  exemption  laws," 
and  unless  some  limit  is  placed  upon  the  amount  by  them  permitted  to 
be  annualty  settled  on  the  wife,  the}'  furnish  a  ready  means  by  which  a 
husband,  no  matter  how  much  he  may  owe,  may  settle  all  his  property 
upon  his  wife,  to  the  complete  discomfiture  of  his  creditors,  and  they 
may  well  be  called  statutes  whereb}'  fraud  is  encouraged  and  ratified. 
For  this  reason  they  should  be  carefully  examined,  and  when  without 
limit  should  be  strictly  construed. 

[The  Vice-Chancellor  held  that  the  New  Jersey  act  did  not  authorize 
"  the  husband  to  set  aside  a  portion  of  his  property  or  income  to  the 
use  of  his  wife  as  against  his  creditors.  ...  A  contrary  result  under 
the  New  York  statute  is  due  to  the  interpolation  therein,  in  1858,  of 
the  words  '  out  of  the  funds  or  property  of  the  husband.'  "  He  then 
referred  to  Central  Bank  v.  Hume,  128  U.  S.  195,  and  approved  a 
criticism  of  it  in  25  Am.  L.  Rev.  185,  but  distinguished  the  case 
on  the  ground  that  the  court  there  did  not  find  that  a  fraudulent  intent 
existed  or  was  necessaril}-  to  be  inferred  from  the  surrounding  circum 
stances]. 

The  demurrer  must  be  overruled,  with  the  usual  consequences.1 


WARREN   v.    MOODY. 

UNITED  STATES  SUPREME  COURT,  APRIL  22-MAY  23,  1887. 

[Reported  in  122  United  States,  132.] 

THIS  was  a  bill  in  equity  filed  in  the  District  Court  of  the  United 
States  for  the  Middle  District  of  Alabama  by  Frank  S.  Moody  and 
Richard  C.  McLester  as  assignees  in  bankruptcy  of  Baugh,  Kennedy 
&  Co.  and  John  S.  Kennedy  against  John  S.  Kenned}1,  his  wife,  Mary 
E.  Kennedy,  their  daughter,  Vernon  L.  Warren  and  her  husband, 
Edward  Warren.  The  case  was  heard  on  the  facts  in  the  answers,  ad- 
mitted to  be  true  by  stipulation  and  three  depositions.  It  appeared 
that  John  S.Kennedy  in  1866,  owning  property  to  the  value  of  $91,408 
and  owing  individual  debts  amounting  to  $3,400  and  partnership  debts 

1  The  cases  and  statutes  bearing  on  the  questions  involved  in  this  case  are  collected 
and  discussed  in  25  Am.  L.  Rev.  185. 

See  also  In  re  Harrison,  [1 900]  2  Q.  B.  710 ;  Masonic  Mnt.  Life  ABBOC.  v.  Paisley,  111 
Fed.  34;  Lehman  v.  Gunn,  124  Ala.  213;  Hendrie  Mfg.  Co.  v.  1'latt,  13  Col.  App.  15; 
Johnson  v.  Alexander,  125  Ind.  575;  Bailey  v.  Wood,  202  Mass.  549,  562;  First 
Nat.  Bauk  v.  Simpson,  152  Mo.  638;  Adler  Co.  v.  Hellmau,  55  Neb.  266;  Roberts  v. 
Winton,  100  Tenn.  484. 


218  WARREN   V.    MOODY.  [CHAP.  IV. 

of  about  $3,000,  conveyed  land  in  Alabama  to  his  daughter,  as  an  ad- 
vancement on  her  marriage.  The  value  of  the  land  was  variously  esti- 
mated from  $6,000  to  $10,000.  In  1876  John  S.  Kennedy  became 
bankrupt,  and  this  suit  was  brought  to  set  aside  the  deed,  on  the  ground 
that  the  individual  debts  and  some  of  the  partnership  debts  owing  at 
the  time  of  the  advancement  were  still  unpaid.  The  bill  alleged  that 
the  deed  was  voluntary  and  that  such  a  deed  was  absolutely  void  as 
against  existing  debts  by  the  laws  of  Alabama,  but  so  far  as  appeared 
there  was  no  actual  intent  to  hinder,  delay,  or  defraud  creditors.  The 
District  Court  made  a  decree  setting  aside  the  deed>  and  this  was 
affirmed  by  the  Circuit  Court.1 

Mr.  John  T.  Morgan,  for  appellants. 

Mr.  M.  L.  Woods  and  Mr.  William  /S.  Thorrington,  for  appellees. 

Mr.  Justice  BLATCHFOKD  delivered  the  opinion  of  the  court. 

It  will  be  noticed  that  the  bill  does  not  attack  the  deed  on  the  ground 
of  fraud.  It  does  not  allege  that  it  was  made  with  any  intent  to  delay, 
hinder,  or  defraud  the  creditors  named  in  the  bill,  or  an}'  other  cred- 
itors of  Kenned}'.  It  does  not  allege  that  there  are  any  other  creditors 
than  those  named  in  the  bill,  or  any  creditors  who  became  such  after 
the  making  of  the  deed.  The  sole  ground  on  which  it  proceeds  is,  that 
the  deed  was  a  voluntary  deed,  and  is  void  as  against  the  persons  who 
were  creditors  of  Kennedy  prior  to  the  making  of  the  deed.  It  claims 
that  the  plaintiffs,  as  assignees  in  bankruptcy,  represent  the  debts  of 
those  creditors,  for  the  purposes  of  the  suit. 

The  alleged  right  of  action  of  the  plaintiffs  is  asserted  under  section  14 
of  the  Bankruptcy  Act  of  March  2,  1867,  c.  176,  14  Stat.  522,  which  pro- 
vides, that  "  all  the  property  conveyed  by  the  bankrupt  in  fraud  of  his 
creditors  "  shall,  in  virtue  of  the  adjudication  of  bankruptc}'  and  the 
appointment  of  his  assignee,  be  at  once  vested  in  such  assignee,  and  he 
may  sue  for  and  recover  the  said  estate,  debts,  and  effects."  This 
provision  is  also  found  in  sections  5046  and  5047  of  the  Revised 
Statutes. 

The  deed  in  question  was  a  valid  instrument  between  the  grantors 
and  the  grantees.  The  stipulation  on  which  the  case  was  heard,  con- 
taining an  admission  "  that  the  facts  set  forth  in  the  answers  are  sub- 
stantiall}*  true,  except  so  far  as  controverted  by  the  depositions  and 
other  evidence  in  the  cause,"  makes  the  allegations  of  fact  contained  in 
the  answer  of  Kennedy  and  his  wife  evidence  in  the  cause.  When  the 
deed  was  made,  Kennedy  was,  as  the  answer  alleges,  in  prosperous  cir- 
cumstances, and  possessed  of  ample  means  to  pay  all  debts,  and  was 
able  to  withdraw  the  value  of  the  donation  to  his  daughter  from  his 
estate  without  the  least  hazard  to  his  creditors,  and  the  amount  of  his 
individual  debts  was  ver}T  small  as  compared  with  the  amount  of 
his  property.  The  deed  to  the  daughter  being  honest  in  fact  and  in  in- 
tent, and  being,  on  the  evidence,  a  proper  provision  for  her,  as  an  ad- 
vancement on  the  occasion  of  her  marriage,  and  being  valid  as  between 

1  An  abbreviated  statement  has  been  substituted  for  that  in  the  original  report. 


SECT.  I.]  WARREN   V.   MOODY.  219 

her  parents  and  herself,  and  no  fraud  in  fact,  or  intent  to  commit  a 
fraud,  or  to  hinder  or  delay  creditors,  being  alleged  in  th6  bill,  the  case 
is  not  one  in  which  these  plaintiffs  can  set  aside^the  deed,  as  being  a 
deed  of  "  property  conveyed  by  the  bankrupt  in  fraud  of  his  creditors," 
even  though  the  conveyance  may  have  been  invalid,  under  the  statute 
of  Alabama,  as  against  the  creditors  named  in  the  bill,  because  it  was 
a  voluntary  conveyance.  These  creditors,  whatever  remedies  the}-  maj^ 
have  had  to  collect  their  debts,  are  not  represented  by  the  plaintiffs,  as  W^***1 

assignees  in  bankruptc}',  for  the  purposes  of  this  suit,  on  the  facts     ,,       e?y* 
,       ,        ,  H  siAj-. 

developed. 

The  case  of  Pratt  v.  Curtis,  2  Low.  87,  cited  by  the  plaintiffs,  was 
a  case  of  two  bills  in  equity  by  the  assignee  of  a  bankrupt  to  set  aside 
conveyances  of  land  made  by  the  bankrupt,  one  being  a  voluntary  deed 
of  settlement  for  the  benefit  of  his  children,  and  the  other  being  a  like 
deed  for  the  benefit  of  his  wife.  Each  bill  alleged  that,  at  the  time  of 
the  settlement,  the  bankrupt  was  indebted  to  persons  who  were  still  his 
creditors,  and  was  embarrassed  in  his  circumstances,  and  that  the  deed 
was  made  with  intent  to  delay  and  defraud  his  creditors.  On  demurrer 
the  bill  was  sustained,  on  the  view  that  the  assignee  in  bankruptcy,  and 
he  only,  had  the  right  to  impeach  the  deeds,  in  the  interest  of  creditors. 
That  decision,  based  on  a  case  of  intent  to  delay  and  defraud  creditors, 
on  the  part  of  a  person  embarrassed  in  his  circumstances,  has  no  appli- 
cation to  the  present  case. 

The  decree  of  the  Circuit  Court  is  reversed,  and  the  case  is  re- 
manded to  it,  with  a  direction  to  dismiss  the  bill,  with  costs 
to  the  defendants  in  the  Circuit  Court  and  in  the  District 
Court.* 

1  In  Pratt  v.  Curtis,  2  Low.  87,  89,  Judge  LOWELL  said  :  "  It  is,  however,  the  Statute 
of  13  Eliz.  as  adopted  and  construed  in  Massachusetts  which  governs  this  case."  See 
also  Sumner  v.  Hicks,  2  Black,  532  ;  Hill  v.  Agnew,  12  Fed.  Kep.  230. 

In  Schreyer  v.  Scott,  134  U.  S.  405,  409,  the  court  said  :  ''  In  determining  the  rules 
applicable  to  such  transactions  reference  should  be  had  not  only  to  the  decisions  of  this 
court,  but  also  to  those  of  New  York,  where  the  parties  lived  and  the  transactions  took 
place."  And  at  p.  411  :  "  From  these  authorities  it  is  evident  that  the  rule  obtaining 
in  New  York,  as  well  as  recognized  by  this  court,  is,  that  even  a  voluntary  conveyance 
from  husband  to  wife  is  good  as  against  subsequent  creditors ;  unless  it  was  made  with 
the  intent  to  defraud  such  subsequent  creditors ;  or  there  was  secrecy  in  the  trans- 
action by  which  knowledge  of  it  was  withheld  from  such  creditors,  who  dealt  with  the 
grantor  upon  the  faith  of  his  owning  the  property  transferred  ;  or  the  transfer  was 
made  with  a  view  of  entering  into  some  new  and  hazardous  business,  the  risk  of  which 
the  grantor  intended  should  be  cast  upon  the  parties  having  dealings  with  him  in  the 
new  business.  Tested  by  these  rules,  it  is  impossible  to  sustain  an  adjudication,  upon 
the  testimony  in  this  case,  that  the  transfer  of  either  the  real  estate  or  the  bonds  and 
mortgages  was  fraudulent  as  against  the  creditor  VandcrhiU." 

In  Randolph  v.  Quidnick  Co.  135  U.  S.  457,  a  suit  turning  on  the  validity  of  an  as- 
signment for  the  benefit  of  creditors,  the  court  said,  at  p.  463:  — 

"  But  we  need  not  rest  upon  these  considerations  alone.  The  Circuit  Court  dis- 
missed the  bill,  on  the  ground  that  the  Supreme  Court  of  the  State  of  Rhode  Island 
had  decided  that  the  first  and  principal  conveyance  by  the  Spragues  to  their  trustee 
was  valid  under  the  State  statute.  Austin  v.  Sprague  Manufacturing  Co.,  14  Rhode 
Island,  464.  This  ruling  it  had  followed  in  an  earlier  case,  Moulton  v.  Chafee,  22 


220  PICKSTOCK   V.   LYSTER.  [CHAP.  IV. 

SECTION   I.  (continued). 
(c)    GENERAL  ASSIGNMENT  FOR  CREDITORS. 

PICKSTOCK  v.  LYSTER. 

KING'S  BENCH,  HILARY  TERM,  1815. 

[Reported  in  3  Maule  $•  Selwyn,  371.] 

ASSUMPSIT  for  money  had  and  received.     Plea,  non-assurapsit. 

At  the  trial  before  RICHARDS,  B.,  at  the  last  Salop  assizes,  the  case 
was  this  :  the  plaintiff  being  a  creditor  of  one  Glover,  in  Januan-, 
1812,  sued  him  for  his  debt.  Glover  suffered  judgment  by  default, 
and  a  writ  of  inquiry  was  executed  on  the  17th  of  June  following,  and 
orvthe  25th  a  fi.  fa.  was  delivered  to  the  defendant,  the  sheriff.  But 
berore  that  day,  viz.,  on  the  15th  of  the  month,  Glover  being  insolvent 
executed  an  assignment  by  deed  of  all  his  effects  to  trustees  for  the 
benefit  of  all  his  creditors  ;  under  which  deed  possession  was  taken 
immediately  after  its  execution,  but  the  deed  was  not  signed  b}-  any  of 
the  creditors.  This  assignment  Glover  had  been  desirous  of  making, 
and  had  actually  given  instructions  for  its  preparation  in  the  early  part 
of  the  year,  though  not  until  after  he  had  been  served  with  the  writ  at 
the  plaintiffs  suit,  and  the  deed  had  been  prepared,  and  in  it  the  plain- 
tiff was  named  as  one  of  the  trustees,  but  it  did  not  appear  that  was 
done  with  his  knowledge,  and  his  name  was  afterwards  erased,  and 
that  of  another  creditor  substituted.  The  deed,  as  it  originally  stood, 
contained  a  clause  whereby  the  trustees  engaged  to  indemnif3"  Glover 
from  his  debts,  which  clause  was  erased  before  its  execution  on  the  15th 
of  June  ;  and,  on  account  of  this  and  other  erasures,  it  was  suggested 
that  it  had  better  be  re-ingrossed,  but  Glover  refused,  as  much  on  ac- 
count of  the  expense  as  for  fear  he  should  be  arrested,  saying  that  he 
should  not  be  safe  another  day,  and  that  the  plaintiff  would  take  pos- 
session of  his  goods  in  the  mean  time.  The  defendant  levied  under  the 

Fed.  Rep.  26.     Unquestionably,  if  that  conveyance  and  the  transfers  immediately  fol- 
lowing were  valid,  the  complainant's  testator  took  nothing  by  his  purchase. 

"It  is  unnecessary  to  place  our  judgment  solely  upon  the  decision  of  the  Supreme 
Court  of  Rhode  Island,  in  the  case  cited ;  and  yet  it  is  worthy  of  most  respectful  con- 
sideration, both  because  it  is  a  decision  of  the  highest  court  of  the  State  in  which  the 
transactions  took  place,  and  also  because  it  reviews  all  the  objections  made  to  the  con- 
veyance with  clearness  and  ability.  As  to  the  construction  of  a  State  statute,  we  gen- 
erally follow  the  rulings  of  the  highest  court  of  the  State,  Bacon  v.  Northwestern  Life 
Insurance  Co.,  131  U.  S.  258,  and  cases  cited  in  opinion;  and  as  to  other  matters,  we 
lean  towards  an  agreement  of  views  with  the  State  courts,  Burgess  v.  Seligman,  107 
U.  S.  20,  34.  So,  when  the  highest  court  of  a  State  affirms  that  a  conveyance,  made 
by  a  debtor  to  a  trustee  for  the  benefit  of  creditors,  is  valid  under  the  statutes  of  that 
State,  we  should  ordinarily,  in  any  case  involving  the  validity  of  such  conveyance,  fol- 
low that  ruling,  even  though  that  statute  was  common  to  many  States,  and  in  others  a 
different  ruling  had  obtained."  See  also  Robinson  v.  Belt,  187  U.  S.  41. 


SECT.  I.]  PICKSTOCK  V.  LYSTER.  221 

fi.  fa.,  but  retained  the  proceeds  in  his  hands,  for  which  this  action 
was  brought,  in  order  to  tr}-  the  question  whether  the  property  passed 
from  Glover  by  this  assignment  and  delivery  of  possession.  The 
learned  judge  directed  the  jury  that  if  they  thought  the  deed  was  exe- 
cuted with  an  intent  to  defeat  the  plaintiff  of  his  execution,  then  it  was 
void  in  law,  and  they  must  find  for  the  plaintiff,  but  otherwise  for  the 
defendant.  The  jury  found  a  verdict  for  the  plaintiff. 

Lord  ELLENBORODGH,  C.  J.  The  only  thing  to  raise  a  doubt  in  my 
mind  upon  the  present  case  would  be  the  authority  of  Mr.  J.  Law- 
rence, under  whose  direction  it  is  said  that  a  bill  of  sale  executed  to  a 
bonafide  creditor  was  held  not  only  to  have  been  made  under  circum- 
stances which  carried  with  them  a  badge  of  fraud,  but  to  be  evidence 
of  such  fraud  as  warranted  him  in  leaving  it  to  the  jury  to  find  against 
the  bill  of  sale,  if  it  was  made  in  order  to  defeat  another  creditor.  But 
I  am  afraid  that  if  the  conveyance  in  this  case  be  not  good,  it  will  break 
in  upon  the  validity  of  all  judgments  confessed  by  executors,  or  b}-  the 
party  himself,  where  either  the  party  or  the  executor  wishing  to  give  a 
preference  to  some  particular  creditor  has  confessed  t)ie  same ;  all 
judgments  also  which  have  been  confessed  for  the  actual  aggregate 
amount  of  the  debts  due  to  all  the  creditors,  and  with  their  consent,  will 
be  open  to  this  objection.  Can  any  one  doubt  that  the  first  motive  in 
many  of  those  cases,  as  well  as  in  this,  was  to  defeat  the  particular 
creditor ;  but  at  the  same  time  it  is  not  considered  as  an  injury  to  him, 
being  for  the  benefit  of  all  the  creditors  to  procure  an  equal  distribu- 
tion amongst  all  of  the  fund  to  which  all  have  an  equal  right,  against 
one  who  has  gained  the  first  step  upon  them.  In  Tolputt  v.  Wells, 
1  M.  &  S.  395,  and  in  a  note  which  is  there  given  (Ibid.,  408),  and  which 
was  cited  by  m3-self,  it  was  considered  that  an  executor  might  give  a 
preference,  and  make  confession  in  favor  of  some  creditors  pending  a 
suit  by  another  creditor.  The  principle  of  those  decisions  would  be 
destro}'ed  if  we  should  hold  an  assignment  fraudulent  because  it  may 
operate  to  the  prejudice  of  a  particular  creditor.  Such  an  assignment 
as  the  present  is  to  be  referred  to  an  act  of  duty  rather  than  of  fraud, 
when  no  purpose  of  fraud  is  proved.  The  act  arises  out  of  a  discharge 
of  the  moral  duties  attached  to  his  character  of  debtor,  to  make  the  fund 
available  for  the  whole  body  of  creditors.  Here,  if  the  assignment  had 
been  for  the  purpose  of  fraud  upon  the  plaintiff,  the  plaintiff  would 
have  been  entirely  excluded  from  it,  whereas  it  appears  that  his  name 
was  once  proposed  and  inserted  as  a  trustee.  The  deed  also  when  ex- 
ecuted was  not  then  taken  up  on  the  sudden  and  for  the  first  time,  but 
had  been  in  the  contemplation  of  the  debtor  for  several  months  before. 
It  is  not  the  debtor  who  breaks  in  upon  the  rights  of  the  parties  by  this 
assignment,  but  the  creditor  who  breaks  in  upon  them  by  proceeding 
in  his  suit.  I  see  no  fraud  ;  the  deed  was  for  the  fair  purpose  of  equal 
distribution.  In  the  case  before  Lawrence,  J.,  I  cannot  help  thinking 
that  the  deed  must  have  been  made  in  trust  for  the  party  himself; 
otherwise  that  learned  judge,  who  could  not  have  been  ignorant  of 


222  RUSSELL   V.   WOODWARD.  [CHAP.  IV. 

Holbird  v.  Anderson,  must  have  felt  the  weight  of  it,  unless  there  was 
some  such  distinction.  If  that  were  not  so,  I  cannot  agree  that  what 
he  ruled  was  according  to  the  law.  The  uniform  practice  has  been 
otherwise,  particularly  in  the  case  of  executors,  which  is  in  pari  mate- 
ria,  and  also  in  the  case  of  Holbird  v.  Anderson. 

Rule  absolute.1 


RUSSELL  v.  WOODWARD. 
MASSACHUSETTS  SUPREME  JUDICIAL  COURT,  1830. 

[Reported  in  10  Pickering,  408.] 

REPLEVIN.  At  the  trial,  before  MORTON,  J.,  it  appeared  that  the 
defendant,  a  deputy  sheriff,  had  taken  the  property  replevied,  on  a  writ 
of  attachment  in  favor  of  Dan  Wilmarth  against  Nathaniel  Wheeler, 
the  property  at  the  time  of  the  attachment  being  in  the  actual  posses- 
sion of  Wheeler. 

The  plaintiffs  (who  were  four  in  number)  claimed  the  property  by 
virtue  of  a  prior  assignment  made  to  them  by  Wheeler,  by  an  indenture 
between  Wheeler  of  the  first  part  and  the  plaintiffs  of  the  second  part. 
By  the  indenture,  Wheeler,  in  consideration  of  the  covenants  on  the 
part  of  the  plaintiffs  therein  contained,  assigns  to  the  plaintiffs  certain 
real  and  personal  estate  and  choses  in  action,  in  trust  to  sell  and  dis- 
pose of  the  same  or  such  part  thereof  as  they  may  see  fit,  at  such  times 
and  on  such  terms  and  at  such  prices  as  may  seem  to  them  most  expe- 
dient, and  out  of  the  proceeds,  after  deducting  necessary  expenses  and 
a  reasonable  compensation  for  their  own  labor,  to  pay  all  and  every  of 
the  creditors  of  Wheeler,  in  ratable  proportion  to  the  debt  of  each, 
without  preference,  so  far  as  the  funds  will  go,  and  the  surplus,  if  any, 
to  hold  to  Wheeler's  use  ;  —  and  the  plaintiffs  accept  the  trust,  and 
covenant,  each  for  himself,  that  they  will  faithfull}'  execute  the  trust, 
and  that  Wheeler  shall  be  permitted  to  use  and  occupy  the  propertj7  so 
conveyed,  committing  no  waste  thereon,  until  such  time  as  the  same 
shall  be  sold  or  disposed  of  in  the  due  execution  of  the  trust. 

The  indenture  was  recorded  in  the  registr}"  of  deeds,  on  the  day  of 
its  date. 

It  was  objected  that  the  assignment  was  void  for  want  of  considera- 
tion, and  on  account  of  the  clause  which  permitted  Wheeler  to  remain 
in  possession  of  the  property  until  the  plaintiffs  should  take  posses- 
sion thereof  to  execute  the  trust ;  but  the  objections  were  overruled. 

It  was  also  objected,  that  the  assignment  was  fraudulent,  inasmuch 
as  the  plaintiffs  had  not  proved  that  they  were  creditors  of  Wheeler ; 

1  LE  BLANC,  BAYLEY,  and  DAMPIER,  ,TJ.,  delivered  brief  concurrent  opinions. 
»For  many  decisions  in  accord  with  Pickstock  v.  Lyster,  see  14  Am.  &  Eng.  Encyc. 
of  Law  (2d  ed.),  393,  n.  3  and  4.     But  see  Dalton  v.  Currier,  40  N.  H.  237. 


SECT.  L]  RUSSELL   V.   WOODWARD.  223 

whereupon  evidence  was  given  that  Russell  and  Vickery,  two  of  the 
plaintiffs,  were  creditors  at  the  date  of  the  assignment,  though  the 
amount  of  their  debts  was  small  in  comparison  with  the  property  as- 
signed ;  but  the  judge  suggested  that  the  burden  of  proof  on  this  point 
was  upon  the  defendant. 

The  jury  found  a  verdict  for  the  plaintiffs.  If  either  of  the  fore- 
going directions  and  decisions  was  incorrect,  a  new  trial  was  to  be 
granted. 

W.  Baylies,  and  W.  A.  F.  Sproat,  for  the  defendant. 

C.  Gr.  Lorinff,  for  the  plaintiff. 

The  opinion  of  the  court  was  afterwards  drawn  up  by 

SHAW,  C.  J.  Were  the  validity,  effect,  and  operation  of  a  trust  as- 
signment, made  by  a  failing  debtor,  for  the  avowed  purpose  of  provid- 
ing for  the  disposition  of  his  property,  and  making  a  ratable  distribu- 
tion of  the  proceeds  among  his  creditors,  upon  general  principles  of 
law,  equity,  and  expediency,  so  far  as  a  court  of  law  can  properly  take 
into  view  considerations  of  expediency,  now  for  the  first  time  drawn  in 
question,  the  able  argument  of  the  plaintiff's  counsel  maintaining  the 
ground,  that  the  assignment  in  question  vested  the  whole  of  the  assign- 
ed property  in  the  assignees,  so  as  to  bind  all  creditors  and  bar  the 
right  of  attachment,  whether  the  creditors  generally,  or  creditors  to  any 
particular  amount,  had  become  parties  to  it  or  not,  would  certainly  be 
entitled  to  great  consideration.  But  this  court  is  not  now  at  liberty  to 
regard  these  as  open  questions.  In  the  absence  of  a  general  bankrupt 
law,  a  series  of  judicial  decisions  has  taken  place  upon  this  subject,  ex- 
tending over  a  period  of  nearly  thirt}'  .years,  founded  upon  the  princi- 
ples of  law  and  equit}',  and  the  nature  and  extent  of  remedies  as  they 
existed  at  the  time  of  these  respective  decisions,  by  which  a  s\'stem  of 
rules  of  conduct  and  action,  especially  among  the  trading  community, 
has  been  established,  at  least  so  far  as  such  sj'stem  can  be  established 
by  judicial  decision  and  precedent.  Under  this  S3-stem,  and  in  reliance 
upon  it,  contracts  and  transfers  have  been  made,  rights  and  remedies 
acquired,  to  a  large  extent ;  and  it  would  be  inconsistent  with  the  plain 
principles  of  justice  now  to  disturb  them,  or  to  change  the  law,  in  any 
other  mode  than  by  a  legislative  act,  which  should  look  only  to  the 
future,  and  guard  by  adequate  provisions,  all  acquired  and  existing 
rights. 

This  system  recognizes  the  right  of  a  creditor  to  attach  the  personal 
property  of  his  debtor  on  mesne  process,  and  to  hold  it  as  security  for 
such  judgment  as  he  may  recover,  being  a  right  founded  upon  early 
colonial  laws,  and  uniformly  practised  upon  in  this  Commonwealth.  It 
also  recognizes  the  right  of  a  debtor  to  give  a  preference  to  one  or  more 
of  his  creditors  ;  and  by  agreement  with  him  or  them,  to  transfer  a  por- 
tion or  the  whole  of  his  propert}'to  them  in  satisfaction  of  a  subsisting 
debt,  or  as  an  indemnity  against  a  subsisting  suretyship  or  other  lia- 
bility. Such  property  may  consist  either  in  real  or  personal  estate,  of 
securities,  or  choses  in  action. 


224  RUSSELL   V.   WOODWARD.  [_CHAP.  IV. 

It  is  but  a  slight  extension  of  this  rule,  that  as  the  debtor  may  con- 
vey propert}*  to  one  or  more  of  his  creditors,  in  satisfaction  of  their 
debts,  so  he  may  convey  to  a  third  person,  appointed  b}-  such  creditors 
and  for  their  use,  or  appointed  in  the  first  instance  by  the  debtor,  if  the 
creditor  afterwards  assent  to  and  ratify  such  appointment.  Or  the 
assignee  may  stand  in  both  characters,  acting  for  himself  to  the  extent 
of  his  own  debt,  and  as  a  depositary  and  trustee  for  others,  by  their 
appointment  or  assent. 

But  if  under  a  pretence  of  a  conve}"ance  for  the  benefit  of  creditors, 
the  debtor  transfers  his  property  upon  any  secret  tru,st  for  himself,  if 
it  is  attended  with  any  of  the  known  badges  of  fraud,  not  satisfactorily 
explained  or  removed,  the  conveyance  is  void  at  law.  As  the  transac- 
tion imports  upon  the  face  of  it,  that  the  grantor  is  insolvent,  any  vol- 
untary or  gratuitous  conveyance  or  conveyance  without  an  adequate 
consideration,  is  void  as  against  creditors. 

From  these  views  of  the  law,  as  settled  by  a  series  of  decisions,  it  is 
manifest,  that  jn  order  to  maintain  a  conve.yance  to  trustees,  bj"  a  fail- 
ing debtor,  for  the  benefit  of  creditors,  against  an  attachment  of  a 
creditor  not  a  party  to  suck, assignment,  it  must  appear  that  the  assign- 
ment was  rnadje-xupon  a  valuable  and  adequate  consideration^rind  in 
good  faith,  to-  satisfy  or  secure  real  existing  debts,  or  to  indemnify 
against  actual  and  subsisting  liabilities  ;  and  as  it  appears,  by  the  re- 
citals and  terms  of  such  assignment,  that  the  grantor  is  insolvent,  and 
that  no  actual  consideration  in  money  or  other  equivalent  is  paid  by 
the  grantees,  such  consideration  must  consist  in  the  faithful  applica- 
tion of  the  assigned  property  to  the  payment  and  discharge,  in  part  or 
in  whole,  of  the  assignor's  debts  and  liabilities,  or  in  an  acceptance  of 
the  same  in  satisfaction,  by  the  creditors  and  sureties  to  whom  or  to 
whose  use  it  has  been  conveyed  ;  it  must  appear  that  such  conveyance 
has  been  accepted  in  payment  or  satisfaction,  by  such  creditors  and 
sureties,  in  order  to  make  such  transfer  complete  and  available  against 
attaching  creditors. 

It  has  been  argued  in  the  present  case,  that  as  the  assignment  does 
not  in  terms  require  the  creditors,  by  becoming  parties  to  it,  to  release 
their  debts,  or  take  upon  themselves  any  other  onerous  condition,  and 
as  the  assignment  must  of  necessity  therefore  operate  as  a  benefit  to 
them,  their  assent  is  to  be  presumed.  But  the  court  are  strongly  in- 
clined to  the  opinion,  that  this  circumstance  of  not  executing  a  release, 
makes  no  substantial  difference,  and  therefore  that  in  conformity  to  a 
series  of  decisions,  it  must  be  held,  that  the  assignment  of  the  whole 
or  the  bulk  of  an  insolvent  debtor's  property,  to  assignees  selected 
wholly  by  himself,  and  without  the  knowledge  of  the  creditors,  in  trust 
to  dispose  of  the  same  upon  such  terms  as  the  debtor  alone  thinks  fit 
to  impose,  and  to  distribute  the  proceeds  among  the  creditors,  does  not 
appear  to  be  so  plainly  beneficial  to  them  as  to  come  within  the  princi- 
ple relied  upon  in  the  argument,  upon  which  their  assent  is  to  be  pre- 
sumed. It  must  be  considered  that  by  assenting  to  and  affirming  such 


SECT.  I.]  RUSSELL   V.   WOODWARD.  225 

assignment,  the  creditors  do  in  effect  consent  that  the  whole  of  such 
insolvent's  available  property,  instead  of  being  applied  to  the  satisfac- 
tion of  their  debts,  according  to  the  rules  of  law,  and  under  the  direc- 
tion of  the  creditors  themselves,  shall  go  into  the  hands  of  a  stranger, 
appointed  by  the  debtor,  and  under  his  direction.  We  think  it  would 
be  difficult  to  presume  without  proof,  that  the  creditors  have  assented 
to  an  arrangement  which  thus  defeats  their  legal  remedies,  especially 
against  a  creditor,  who  by  bringing  his  suit  and  attaching  the  property, 
has  expressed  his  dissent  from  and  disaffirmance  of  the  assignment. 

But  this  point  does  not  necessarity  arise  in  the  present  case.  It  does 
not  appear  that  there  were  creditors  whose  debts  would  be  sufficient 
to  absorb  the  assigned  property,  even  if  their  assent,  without  their  be- 
coming parties,  could  be  presumed.  It  appeared  in  evidence,  that  a 
large  amount  of  propert}'  was  assigned,  and  that  the  amount  due  the 
assignees,  and  those  whom  they  represented,  was  small.  In  this  state 
of  the  evidence,  it  was  ruled,  that  the  burden  of  proof  was  upon  the 
defendant  to  impeach  the  consideration,  as  being  fraudulent  against 
creditors.  Such  is  undoubtedly  the  rule,  in  ordinaiy  cases  of  the  con- 
veyance of  property,  impeached  on  the  ground  of  being  intended  to 
delay  or  defeat  creditors  and  fraudulent  upon  that  ground. 

But  for  the  reasons  before  stated,  a  different  rule  prevails  where  the 
assignment,  on  the  face  of  it,  purports  to  be  made  by  an  insolvent  debtor 
to  trustees,  for  the  use  of  creditors,  and  where  the  conveyance  does  not 
purport  to  be  made  upon  consideration  of  money  paid.  There  we  think 
the  burden  of  proof  is  upon  the  assignees  to  show  an  adequate  consid- 
eration for  the  assignment.  What  is  an  adequate  consideration,  de- 
pends upon  such  circumstances  which  may  be  extremely  various,  and 
in  regard  to  which  it  is  not  now  necessary  to  express  an}'  opinion. 

The  court  are  all  of  opinion,  that  in  the  state  of  the  proof  upon  the 
trial  of  this  cause,  the  suggestion  from  the  court,  that  the  burden  of 
proof  was  upon  the  defendant,  and  that  the  plaintiffs  as  assignees  were 
under  no  necessity  of  proving  the  existence  of  their  own  debts  or  of  the 
debts  of  other  creditors,  as  a  consideration  for  the  assignment,  was  in- 
correct, and  therefore  that  there  must  be  a  new  trial.1 

1  In  England  it  is  requisite  that  one  or  more  of  the  creditors  assent  expressly  or  by 
implication.  Until  then  the  deed  is  regarded  as  revocable  for  the  assignor,  it  is  held, 
"  is  merely  directing  the  mode  in  which  his  own  property  shall  be  applied  for  his  own 
benefit."  Garrard  v.  Lauderdale,  3  Sim.  1,12.  But  in  this  country,  except  in  Massa- 
chusetts, assent  of  creditors  is  not  necessary  to  the  validity  of  an  assignment.  Bnrrill 
on  Assignments  (6th  ed.),  §§256-268. 

Assignments  frequently  contain  provisions  requiring  creditors  to  assent  within  a 
specified  time.  If  the  time  in  reasonable,  such  a  provision  is  valid.  lUirrill,  §  186. 


226  GARDNER   V.   COMMERCIAL   NATIONAL   BANK.        [CHAP. 


GARDNER   v.  COMMERCIAL   NATIONAL  BANK   OF 
PROVIDENCE. 

ILLINOIS  SUPREME  COURT,  MAY  18,  1880. 

[Reported  in  95  Illinois,  298.] 

MR.  JUSTICE  SCHOFIELD  delivered  the  opinion  of  the  court. 

Although  the  deed  of  assignment  was  executed  in  Rhode  Island,  yet 
its  validity  and  effect,  as  an  instrument  for  the  conveyance  of  real  es- 
tate located  here,  must  be  determined  by  our  law.  Story's  Conflict 
of  Laws,  §  364  ;  Rorer  on  Inter-State  Law,  pp.  139,  204 ;  Cutter  v. 
Davenport,  1  Pick.  81 ;  Osborne  v.  Adams,  18  Pick.  245  ;  Hartford 
v.  Nichols,  1  Paige,  220  ;  Chapman  v.  Roberts,  6  Paige,  627  ;  Wills  v. 
Cowper,  2  Ham.  124  ;  Loving  v.  Paire,  10  Iowa,  282. 

The  deed  of  assignment  recites  that,  "  whereas,  the  said  Sackett, 
Davis  &  Co.  are  indebted  to  divers  persons  in  divers  sums  of  money, 
and  their  assets,  although  amounting  in  value  to  about  three  times 
their  said  indebtedness,  cannot  immediately  be  made  available  for  the 
payment  of  the  same,"  etc.  And  it  empowers  the  trustees,  in  their 
discretion,  "  to  carry  on  the  said  jewelry  business,  of  the  parties  of  the 
first  part,  for  such  time  as  the  said  trustees  ma}'  deem  for  the  best  in- 
terests of  the  creditors,  and  necessary  for  the  purpose  of  preventing 
shrinkage  and  loss,  and  of  closing  out  and  liquidating  the  same  to  the 
best  advantage."  In  this  feature  the  case  is  analogous  to  Van  Nest  v. 
Yoe  et  «Z.,  1  Sandford  Ch.  4,  where,  in  a  very  well-reasoned  opinion, 
the  Vice-Chancellor  held  the  deed  of  assignment  void,  as  tending  to 
hinder,  delay,  and  defraud  creditors. 

The  placing  of  the  property  in  the  hands  of  assignees  for  an}-  other 
purpose  than  to  enable  them  to  distribute  it  or  its  proceeds  among 
creditors,  must  necessarily  have  the  effect  to,  in  some  degree,  hinder 
and  delay  creditors  in  the  collection  of  their  debts.  And  when  the 
assignor  has,  or  thinks  he  has,  more  property  than  is  necessary  to  pay 
his  debts,  the  assignment  can  only  be  presumed  to  be  intended  for  his 
own  benefit,  for,  in  that  contingency,  he  alone  is  to  be  profited.  In 
the  case  referred  to  it  is  cogently  said  by  the  Vice-Chancellor:  "  No 
assignment  was  ever  made  by  a  debtor  who  supposed  himself  to  be 
solvent,  with  a  view  or  for  the  purpose  of  selling  and  converting  his 
property  into  money  more  speedily  than  it  could  be  done  by  process  of 
law.  If  such  were  his  design,  he  would  effect  it  himself  without  the 
intervention  of  an  assignee.  The  real  object  is  to  gain  time  —  to  pre- 
vent the  speed}'  sale  and  conversion  which  an  execution  would  inevit- 
ably accomplish."  And,  again,  he  says:  "The  debtor  who,  believing 
himself  more  than  solvent,  places  his  property  beyond  the  reach  of  the 
process  of  the  law,  whatever  may  be  the  pretence  under  which  he  cloaks 
the  act,  in  the  language  of  the  Statute  of  Frauds,  '  hinders '  and  '  delays,' 


SECT.  I.]  GARDNER   V.   COMMERCIAL   NATIONAL   BANK.  227 

and  ultimate!}-  defrauds  his  creditors.  It  is  no  answer  to  this  argument 
to  sa}-  that  the  debtor  provides  an  ample  fund  for  the  payment  of  the 
debt,  and  that  the  creditor  is  ultimately  to  be  paid  in  full.  The  law 
gives  to  the  creditor  the  right  to  determine  whether  his  debtor  shall 
have  further  indulgence,  or  whether  he  will  pursue  his  remedy  for  the 
collection  of  the  debt.  The  deferring  of  payment  is,  generally,  an  in- 
jury to  the  creditor,  and  he  ma}'  be  overwhelmed  with  bankruptcy  for 
the  want  of  the  fund  which  is  locked  up  b}-  the  voluntary  assignment 
of  his  debtor.  It  is  mockery  to  such  a  creditor  to  say  that  the  assign- 
ment is  made  for  the  benefit  of  creditors."  See  also,  to  the  same  effect, 
Kellogg  v.  Slawson,  15  Barb.  56.1 

Manifestlj',  the  carrying  on  the  jewelry  business,  in  view  of  the  as- 
signors' supposed  solvency,  "  for  such  time  as  the  trustees  may  deem 
.  .  .  necessary  for  the  purpose  of  preventing  shrinkage  and  loss,  and 
of  closing  out  and  liquidating  the  same  to  the  best  advantage,"  could 
only  be  designed  to  prevent  a  sacrifice  of  the  assignors,'  property  and 
business  that  would  result  from  the  enforcement  of  the  payment  of 
their  debts  by  the  ordinary  process  of  law ;  and  this,  as  well  as  the 
further  clause  in  the  deed  of  assignment  authorizing  them  to  "  make, 
sign,  indorse,  and  guarantee  any  and  all  bills  of  exchange,  promissory 
notes,  or  other  commercial  paper,  .  .  .  for  any  new  indebtedness  or 
liability  which  may  be  contracted  in  so  canning  on  said  business,"  and 
to  lease  or  mortgage  the  real  estate,  etc.,  clearly  vests  power  in  the 
trustees  to  hinder,  dela}',  etc.,  the  creditors  in  the  collection  of  their 
debts.  They  are  not  compelled,  unless  upon  a  request  of  a  majority  of 
the  creditors,  to  close  out  and  make  final  settlement  of  the  business,  at 
any  particular  time.  Their  judgment  of  what  is  "  for  the  best  interests 
of  the  creditors,  and  necessary  for  the  purpose  of  preventing  shrinkage 
and  loss,  and  of  closing  out  and  of  liquidating  the  same  to  the  best 
advantage,"  is  to  control.  And,  although  it  might  appear  as  clearly 
as  anything  could,  that  the  "  best  interests  of  the  creditors  "  required 
the  business  to  be  closed  up,  still,  this  alone  is  not  sufficient,  for  they 

1  Affirmed  in  1 1  N.  Y.  302.  In  accord  are  Higby  v.  Ayres,  14  Kan.  331 ;  Holmberg 
v.  Dean,  21  Kau.  73  ;  German  Ins.  Bank  v.  Nunes,  80  Ky.  334;  Baldwin  v.  Bnckland, 
11  Midi.  389;  Angell  v.  Rosenbury,  12  Mich.  241;  Gere  v.  Murray,  6  Minn.  305; 
First  Nat.  Bank  v.  Hughes,  10  Mo.  App.  7;  Knight  v.  Packer,  1  Beas.  214;  London 
v.  Packer,  7  Jones  L.  313;  Gardner  v.  Commercial  Nat.  Bank,  13  R.  I.  155.  See  also 
Malvin  v.  Wert,  19  Fed.  Rep.  721 ;  Guerin  v.  Hunt,  8  Minn.  477  ;  North  Ward  Nat. 
Bank  <•.  Conklin,  51  N.  J.  Eq.  7 ;  Livermore  v.  Northrup,  44  N.  Y.  107.  The  Missouri 
and  Rhode  Island  decisions  were  upon  the  same  assignment  as  that  in  Gardner  v. 
Commercial  Nat.  Bank. 

But  see  contra,  Hunter  r.  Ferguson,  3  Colo.  App.  287  (statutory) ;  Munson  v.  Ellis, 
58  Mich.  331  ;  Ogden  v.  Peters,  21  N.  Y.  23.  In  Munson  v.  Ellis,  the  court  said:  "A 
person,  whether  insolvent  or  not,  may  legally  execute  a  conveyance  of  his  property  to 
a  trustee  or  assignee  to  pay  his  indebtedness,  if  he  have  any.  Such  conveyance  would 
not  be  void  upon  its  face,  nor  intrinsically  so.  Creditors  could  attack  its  validity  upon 
the  ground  that  it  was  made  with  intent  to  hinder,  delay,  and  defraud  them,  and  unlesa 
they  could  establish  such  intent  the  assignment  would  be  valid."  See  also  Savery  » 
Spaulding,  8  la.  239;  McCandless  r.  Hazen,  98  la.  321. 


228  GARDNER   V.   COMMERCIAL   NATIONAL    BANK.        [CHAP.  IV. 

are  also  to  have  in  view,  before  acting,  what  is  "  necessary  for  the  pur- 
pose of  preventing  shrinkage  and  loss,"  etc  ,  etc. 

Nor  does  there  appear  any  limitation  upon  the  trustees,  other  than 
what  their  own  judgments  may  impose,  to  prevent  their  incurring  new 
debts  in  the  business,  and  incumbering  the  property  to  its  full  value 
for  their  payment,  indefinitely  in  the  future,  or  to  prevent  their  exhaust- 
ing the  property  assigned  in  the  payment  of  such  debts.  They  have 
power  to  carry  on  the  business,1  to  create  debts,  and  give  notes,  etc., 
therefor,  and  to  sell  and  convey  and  mortgage  the  real  estate. 

But  we  have  frequent!}-  held  that  a  debtor  is  only  allowed  to  place 
his  property  beyond  the  reach  of  his  creditors  b}-  making  a  general 
assignment  of  all  his  propert}',  when  he  does  so  for  the  benefit  of  the 
creditors,  by  devoting  it  fairly  to  the  payment  of  his  debts,  and  not 
with  a  view  to  his  own  advantage.  Nesbitt  et  al.  v.  Digby  et  al.,  13 
111.  387 ;  Phelps  et  al.  v.  Curts  et  al.,  80  111.  113  ;  Hardin  v.  Osborne, 
60  111.  93. 

To  make  such  a  deed  valid  the  debtor's  property  must  be  uncondi- 
tionally and  without  restriction  transferred  to  the  assignee,  with  a  gen- 
eral authority  to  him  to  receive,  hold,  and  dispose  of  it  for  the  equal 
benefit  of  all  the  creditors  in  the  order  of  preference,  if  any,  provided 
for.  Mclntire  v.  Benson,  20  111.  500. 

In  Vernon  v.  Morton  et  al.,  8  Dana  (Ky.),  263,  the  court  says :  "  If 
the  intention  in  executing  the  deed  be  to  hinder  and  delay  creditors,  it 
will  vitiate  the  whole  deed,  though  it  be  made  upon  a  good  considera- 
tion, or  for  the  just  and  equitable  purpose  of  securing  an  equal  distri- 
bution of  the  effects  among  all  the  creditors."  And  again  :  "  When  it 
appears  on  the  face  of  a  deed  of  trust  that  the  motive  for  making  it 
was  to  prevent  a  sacrifice  of  the  propert}-,  a  bad  motive  is  shown,  —  a 
motive  to  obstruct  the  ordinary  process  of  law,  or  the  subjection  of  the 

1  Such  provisions  render  an  assignment  fraudulent.  Owen  v.  Body,  5  A.  &  E.  23 ; 
Spencer  v.  Slater,  4  Q.  B.  D.  13 ;  Hill  v.  Agnew,  12  Fed.  Rep.  230;  Stafford  Nat.  Bank 
i'.  Sprague,  17  Fed.  Rep.  784;  Webb  v.  Armistead,  26  Fed.  Rep.  70;  De  Wolf  v.  A  & 
W.  Sprague  Mfg.  Co.,  49  Conn.  282;  Jones  v.  Syer,  52  Md.  211 ;  Gere  v.  Murray,  6 
Minn.  305;  First  Nat.  Bank  v.  Hughes,  10  Mo.  App.  7;  Dunham  v.  Waterman,  17 
N.  Y.  9;  Peters  v.  Light,  76  Pa.  289;  Gardner  v.  Commercial  Nat.  Bank,  13  R.  I.  155; 
Lowenstein  v.  Love,  16  Lea,  658;  McCormack  v.  Bignall,  1  Tex.  Civ.  App.  §  760; 
Landeman  v.  Wilson,  29  W.  Va.  702.  See  also  Bernard  v.  Barney  Myroleum  Co., 
147  Mass.  356. 

But  a  provision  authorizing  the  continuance  of  business  so  far  as  is  necessary  to 
dispose  of  the  property  on  hand,  or  to  work  up  raw  material  on  hand,  is  generally  held 
valid.  Janes  v.  Whitbread,  11  C.  B.  406;  Coates  v.  Williams,  7  Ex.  205;  Talley  v. 
Curtain,  54  Fed.  Rep.  43 ;  Rankin  v.  Lodor,  21  Ala.  380 ;  De  Forest  v.  Bacon,  2  Conn. 
633 ;  Kendall  v.  New  England  Carpet  Co.,  13  Conn.  383  ;  Christopher  v.  Covington, 
2  B.  Mon.  357  ;  Woodward  v.  Marshall,  22  Pick.  468 ;  Mattison  v.  Judd,  59  Miss.  99 ; 
Anderson  v.  Lachs,  59  Miss.  Ill ;  Bobbins  v.  Butcher,  104  N.  Y.  575  (distinguishing 
Dunham  v.  Waterman,  17  N.  Y.  9,  which  seems  contra) ;  Stoneburner  r.  Jeffreys,  116 
N.  C.  78;  Rindskoff  r.  Guggenheim,  3  Coldw.  284;  Marks  v.  Hill,  15  Gratt.  400; 
Williams  v.  Lord,  75  Va.  390.  See  also  Nat.  Union  Bank  v.  Copeland,  141  Mass.  257. 
Some  of  these  cases  seem,  on  their  facts,  inconsistent  with  some  of  those  in  the  first 
paragraph. 


SECT.  I.]  GARDNER   V.   COMMERCIAL   NATIONAL   BANK.  229 

property  to  the  payment  of  the  debts,  which  vitiates  the  whole  deed." 
To  the  same  purport  is,  also,  Ward  a.  Trotter,  3  Monroe,  1.  * 

So,  we  have  held  a  deed  of  assignment  void  because  of  a  clause 
therein  authorizing  the  sale  of  the  goods  and  property  assigned  on  a 
credit.  Bowen  v.  Parkhurst,  24  111.  257  ;  Pierce  v.  Brewster,  32  111. 
268  ;  Whipplc  v.  Pope,  33  111.  334. l 

The  principle  applicable  here  is  precisely  the  same  as  in  the  last- 
mentioned  cases.  There  the  sale  on  credit  was  prohibited  because  it 
would  involve  the  tying  up  of  the  assets,  and  hence  compel  a  hindrance, 
delay,  and  postponement  of  the  claims  of  creditors.  But  if  the  property 
may  be  held  until  new  debts  are  incurred  and  then  mortgaged  to  secure 
their  payment,  or  sold  and  the  proceeds  devoted  to  their  payment,  it  is 
equally  clear  that  the  creditor  is  hindered,  delayed,  and  postponed  in 
the  collection  of  his  debt. 

The  suggestion  that,  as  to  such  new  debts,  the  trustees  would  only 
bind  themselves,  is  entirely  outside  of  the  language  of  the  deed  of  as- 
signment. It  indirectl}'  but  clearl}*  recognizes  the  right  of  the  trustee 
to  make  new  debts,  which  shall  become  charges  upon  the  property,  and 
by  necessary  implication  to  secure  the  same  by  mortgage,  or  pay  the 
same  out  of  sales  of  the  property,  and  it  is  by  its  own  terms  that,  so  far 
as  affects  the  question  under  consideration,  it  must  stand  or  fall. 

It  is  not  necessary  that  we  should,  at  present,  question  the  right  of 
a  failing  debtor,  in  his  deed  of  assignment,  to  authorize  his  assignee  to 
continue  to  carry  on  the  business  to  which  the  assigned  property  has 
been  devoted,  when  this  is  limited  to  disposing  of  the  stock  on  hand, 
and  such  incidental  business  as  ma}'  be  reasonably  requisite  thereto. 
But  this  business  is  not  thus  limited.  The  deed  here  authorizes  the 
trustees  to  carry  on  the  business  generally,  for  which  purpose  they  are 
invested  with  "  full  and  uncontrolled  power,  in  their  discretion,"  and 
the  only  attempt  at  limitation  is  that  in  respect  of  the  time  which  the 
business  may  be  carried  on,  which  we  have  before  commented  upon. 

And  this  distinguishes  the  cases  referred  to  and  relied  upon  by  coun- 
sel for  appellants  from  the  present  case.  None  of  them  sanction  the 

l  Mullet  o.  Norton,  19  Fed.  Rep.  719;  Shadier  v.  Carroll,  19  Fed.  Rep.  721 ;  Rich- 
ardson 17.  Rogers,  45  Mich.  591  ;  Bennett  v.  Ellison,  23  Minn.  242,  252;  Brahmstadt 
v.  McWhirter,  9  Neb.  6,  9;  Rapalee  r.  Stewart,  27  N.  Y.  310,  Beusa  v.  Shaughnessy, 
2  Utah,  492  (conf.  Sprecht  v.  Parsons,  7  Utah,  107) ;  Page  v.  Olcott,  28  Vt.  465,  468; 
Haines  i».  Campbell,  8  Wis.  187  (conf.  Cribbcn  v.  Ellis,  69  Wis.  337),  arc. 

Janes  «.  Whitbread,  1 1  C.  B.  406  ;  Wright  v.  Thomas.  1  Fed.  Rep.  716  ;  Re  Walker, 
18  N.  B.  R.  56  ;  England  r.  Reynolds,  38  Ala.  370 ,  Wilhoit  v.  Lyons,  98  Cal.  409; 
Petrikin  v.  Davis,  Morris  (la.),  296,  300;  Farquharson  v.  Eichelberger,  15  Md.  63; 
Richardson  v.  Marqueze,  59  Miss.  80;  Baum  v.  Pearce,  67  Miss.  700;  Moore  v.  Carr, 
65  Mo.  App.  64;  Meyer  v.  Black,  4  N.  Mex.  190,  Stoncburncr  r.  Jeffreys,  116  N.  C. 
78;  Conklin  v.  Coonrod,  6  Ohio  St.  611  ;  Gimell  v.  Adams,  11  Humph.  283;  Moody  v. 
Carroll,  71  Tex.  143;  Dance  v.  Seaman,  11  Gratt.  778,  781,  contra. 

A  provision  requiring  or  permitting  postponement  of  the  sale  of  the  trust  property 
does  not  vitiate  the  assignment  if  such  delay  is  not  more  than  is  reasonably  necessary 
for  a  favorable  liquidation  of  the  property.  A  provision  allowing  greater  delay  is 
void.  14  Am.  &  Eng.  Encyc.  of  Law  (2d  ed.),  406. 


230  GROVER   V.    WAKEMAN.  [CHAP.  IV. 

doctrine  that  trustees  ma}'  be  invested  with  "  full  and  uncontrolled 
power "  to  carry  on  business.  Nor  could  a  doctrine,  so  at  variance 
with  reason,  receive  our  sanction,  even  if  announced  by  respectable 
courts. 

The  court  below  property  held  the  deed  void  as  against  creditors, 
and  its  judgment  must  therefore  be  affirmed. 

Judgment  affirmed. 


GROVER  v.   WAKEMAN. 
NEW  YORK  COURT  FOR  THE  CORRECTION  OF  ERRORS,  DECEMBER,  1833. 

[Reported  in  11  Wendell,  187.] 

SUTHERLAND,  J.  The  question  to  be  decided  in  this  case  is  whether 
the  assignment  made  by  Grover  and  Gunn,  on  the  1st  daj-  of  July, 
1826,  is  fraudulent  and  void  upon  its  face,  as  being  calculated  and  in- 
tended, in  judgment  of  law,  to  dela}',  hinder,  and  defraud  their  creditors, 
in  the  prosecution  and  collection  of  their  debts.  The  most  important 
objection  made  to  the  assignment  grows  out  of  the  condition  attached 
to  the  paj'ment  of  the  creditors  named  in  class  No.  2.  The  assignees 
are  directed,  after  discharging  the  debts  due  to  class  No.  1,  to  appor- 
tion whatever  surplus  may  remain,  among  such  of  those  named  in  class 
No.  2  as  will  agree  in  writing  under  seal  to  receive  what  ma}'  fall  to 
them  upon  such  apportionment,  in  full  discharge  of  all  their  claims  and 
demands  upon  the  assignors.  The  residue  of  the  avails,  if  any,  are 
then  to  be  applied  to  the  payment  of  the  debts  due  to  the  debtors  in 
class  No.  3,  and  of  all  other  debts  justly  due  and  owing  b}-  the 
assignors,  to  be  proven  to  the  satisfaction  of  the  assignees ;  and  if  any 
surplus  shall  then  remain,  it  is  to  be  paid  over  to  the  assignors. 

It  was  contended  by  the  complainant  in  the  court  below,  the  respon- 
dent here,  that  such  of  the  creditors  in  class  No.  2  as  shall  refuse  to 
come  in  and  discharge  the  assignors,  upon  the  terms  there  offered  them, 
are  entirely  excluded  from  all  benefit  from  the  assignment ;  that  if 
there  should  be  a  surplus  after  paying  all  the  other  creditors,  according 
to  the  terms  and  spirit  of  the  instrument,  the  assignees  could  not  pay 
it  to  them,  but  must  pa}r  it  to  the  assignors  themselves.  Upon  a  care- 
ful consideration  of  this  instrument,  and  applying  to  it  the  ordinary 
rules  of  interpretation,  I  do  not  think  that  such  is  its  necessary  or  just 
construction.  The  debts  of  the  first  class  are  first  to  be  paid  ;  then  an 
apportionment  is  to  be  made  among  the  debts  of  such  of  the  second 
class  as  will  accept  what  may  then  fall  to  them,  and  give  absolute  re- 
leases. The  residue,  if  an}',  is  then  to  be  applied  to  the  debts  of  class 
No.  3,  and  to  all  other  debts  justl}'  due  and  owing  by  the  assignors. 
Other  than  what?  Why,  obviously,  other  than  those  for  the  payment 
of  which  provision  had  alread}7  been  made.  But  no  provision  had  been 


SECT.  I.]  GROVER   V.   WAKEMAN.  231 

made  for  those  of  class  No.  2,  who  should  refuse  to  accept  their  distrib- 
utive shares  and  give  releases.  They  fall,  therefore,  an  my  opinion, 
within  the  terms  of  the  residuary  clause,  and  would  be  entitled  to  be 
paid  under  the  assignment,  if  the  fund  should  be  sufficient  for  that  pur- 
pose.  A  fraudulent  intent  is  never  to  be  presumed  ;  and  where  an  in- 
strument is  ambiguous  in  its  terms,  and  admits  of  two  constructions, 
that  interpretation  should  be  given  to  it  which  will  render  it  legal  and 
operative,  rather  than  that  which  will  render  it  illegal  and  void.  It 
was  supposed  that  the  provision  that  these  residuary  debts  should  be 
proven  to  the  satisfaction  of  the  assignees  tended  to  show  that  none  of 
those  enumerated  in  class  No.  2  could  have  been  intended  to  be  covered 
by  the  residuary  clause,  because  the  assignors  had,  on  the  face  of  the 
assignment,  admitted  those  to  be  valid  and  existing  debts ;  and  of 
course,  if  those  were  the  debts  intended  to  be  covered,  they  would  not 
have  imposed  on  their  assignees  the  useless  dut}"  of  exacting  and  re- 
ceiving proof  in  relation  to  them.  This  suggestion  is  susceptible  of 
two  answers.  In  the  first  place,  there  may  have  been  man}7  other  debts 
not  enumerated,  and  in  relation  to  which  it  would  have  been  necessary 
and  proper  to  require  proof;  and  in  a  provision  of  this  description,  a 
party  would  naturally  employ  general  and  comprehensive  terms,  al- 
though they  might  embrace  some  cases  in  relation  to  which  the  pro- 
vision was  superfluous.  But,  secondl}',  upon  adverting  to  the  schedule, 
which  contains  class  No.  2,  it  will  be  perceived  that  many  of  the  debts 
there  enumerated  are  stated  by  estimation  only.  Of  the  $34,000  em- 
braced in  that  class,  more  than  one  fourth,  or  about  $9,000,  are  debts 
of  that  description.  In  relation  to  them,  it  was  proper  and  necessary 
to  exact  proof,  as  there  was  no  liquidation  or  admission  of  their 
amount ;  and  in  relation  to  those  that  were  specifically  stated  in  the 
schedule,  the  schedule  itself  would  probably  be  sufficient  evidence  to 
justify  the  assignees  in  receiving  them.  I  entertain  no  doubt,  there- 
fore, that  under  this  assignment,  such  of  the  creditors  of  the  second 
class  as  should  refuse  to  accept  their  shares  of  the  property  assigned  in 
full  satisfaction  and  discharge  of  their  debts  were  not  absolutely  ex- 
cluded from  the  benefit  of  the  assignment,  but  only  postponed  to  a 
subsequent  class.1 

Having  thus  settled  the  character  and  construction  of  the  assign- 
ment, the  question  recurs,  whether  it  is  void  on  account  of  the  con- 
dition on  which  it  makes  the  preference  given  to  the  creditors  of  the 
second  class  to  depend,  to  wit,  an  absolute  discharge  of  their  debts. 
It  is  perfectly  settled,  both  in  England  and  in  this  country,  that  a 
debtor  in  failing  circumstances  has  a  right  to  prefer  one  creditor  or  set 
of  creditors  to  another,  in  all  cases  not  affected  by  the  operation  of  a 
bankrupt  system.  He  may  assign  the  whole  of  his  property  for  the 

1  If  such  creditors  were  absolutely  excluded,  tho  assignment  would  almost  univer- 
sally be  held  fraudulent,  as  the  result  would  be  to  reserve  a  possible  surplus  for  the 
debtor  to  the  exclusion  of  non-assenting  creditors.  Burrill  on  Assignments  (6th  •«!.), 
§  164. 


232  GROVER  V.   WAKEMAN.  [CHAP.  17. 

benefit  of  a  single  creditor,  in  exclusion  of  all  others ;  or  he  may  dis- 
tribute it  in  unequal  proportions,  either  among  a  part  or  the  whole  of 
his  creditors.1  No  matter  how  or  upon  what  principles  the  distribu- 
tion is  made,  if  the  debtor  devotes  the  whole  of  his  property  to  the  pay- 
ment of  just  debts,  neither  law  nor  equity  inquires  whether  the  objects 
of  his  preference  are  more  or  less. meritorious  than  those  for  whom  he  has 
made  no  provision.  3  Maule  &  Selw.  371  ;  4  Mason,  210  ;  5  T.  R.  235  ; 
6  T.  R.  152 ;  8  T.  R.  521 ;  4  East,  1 ;  2  P.  Wms.  427 ;  1  Atk.  R.  95, 
154  ;  2  Johns.  Ch.  R.  283  ;  3  Johns.  R.  71  ;  5  Johns.  R.  382  ;  1  Binn.  502  ; 
18  Mod.  489  ;  5  T.  R.  424 ;  15  Johns.  R.  583 ;  5  Cowen,  547.  The 
right  to  prefer  may  originally  have  been  sustained  in  part  upon  the 
supposition  that  just  and  proper  grounds  of  preference  did  in  most 
cases  exist,  and  would  be  duly  regarded  by  the  debtor ;  but  whatever 
may  have  been  the  reason  or  foundation  of  the  rule,  it  is  one  of  that 
numerous  class  of  cases  in  which  the  rule  has  become  absolute,  without 
anj'  regard  to  the  fact  whether  the  reason  on  which  it  was  founded 
exists  or  not  in  the  particular  cases.  It  is  now  too  late  to  agitate  the 
question,  whether  these  assignments,  either  partial  or  general,  are  sus- 
tained by  considerations  of  true  wisdom  and  policy.  Reflecting  men. 
have  differed  upon  that  subject ;  but  the  better  opinion  seems  to  be, 
that  in  the  absence  of  a  general  bankrupt  system,  the  interests  of  a 
commercial  community  require  that  they  should  be  sustained.  They 
have  accordingly  grown  into  use,  and  have  been  sanctioned  by  judicial 
decisions  in  most  of  the  States  of  the  Union.  They  have  become  thor- 
oughly incorporated  into  our  system  ;  and  all  that  it  is  now  competent 
for  our  courts  to  do,  is  to  see  that  the}'  fairly  appropriate  all  the  insol- 
vent's propert}',  or  such  portion  of  it  as  he  undertakes  to  assign,  to  the 
payment  of  his  just  debts,  and  are  not  made  the  instruments  of  placing 
it  be}'ond  the  reach  of  his  creditors,  and  for  the  benefit,  either  immedi- 
ate or  remote,  of  the  insolvent  himself.  Whenever  they  depart  from 
the  simplicity  of  a  direct  and  unequivocal  devotion  of  the  property  of 
the  assignor  to  the  pa}*ment  of  his  debts,  and  contain  reservations  and 
conditions,  intended  for  his  ease  and  advantage,  they  are  viewed  with 
considerable,  and  I  think  I  may  add,  in  view  of  the  course  of  judicial 
decisions  in  this  State,  with  increasing  distrust. 

1  Assignments  with  preferences,  though  generally  held  valid  at  common  law,  Hunt- 
ley  v.  Kingman,  152  U.  S.  527,  532,  have  been  forbidden  by  statutes  in  most  States,  but 
are  still  allowed,  apart  from  the  National  Bankruptcy  Law,  in  Arkansas,  Georgia,  In- 
dian Territory,  Mississippi,  Montana,  New  York  (only  to  the  extent  of  one  third  of 
the  estate),  North  Carolina,  Utah,  Virginia.  In  some  of  the  States  where  assignments 
with  preferences  are  not  allowed  the  debtor  may,  however,  subject  to  the  possibility  of 
a  petition  in  bankruptcy,  give  a  preference  by  actual  payment  or  transfer  of  part  of  his 
property,  and  immediately  thereafter  make  a  general  assignment  of  the  remainder. 
See  e.  g.  Cross  v.  Carstens,  49  Ohio  St.  548,  and  conf.  Huey  v.  Prince,  187  Pa.  151. 
Where  assignments  with  preferences  are  not  permitted,  the  effect  of  such  assignments 
is  not  everywhere  the  same.  In  some  jurisdictions  the  assignment  is  treated  as  a 
fraudulent  conveyance ;  in  others  it  takes  effect  as  if  made  without  preferences ;  in 
others  it  merely  afforded  ground  for  proceedings  under  State  insolvency  laws,  now 
suspended. 


SECT.  I.]  GROVER  V.  WAKEMAN.  233 

The  precise  question  now  presented  to  us  has  never  been  decided  in  this 
State.  In  Hyslop  v.  Clarke,  14  Johns.  458,  Austin  v.  Bell,  20  Johns. 
442,  and  Seaving  v.  Brinckerhoff,  5  Johns.  Ch.  R.  329,  it  arose  in 
connection  with  other  circumstances  which  had  more  or  less  influence  in 
the  decision  of  those  causes.  Hyslop  v.  Clarke  was  an  action  of  tres- 
pass, brought  by  the  assignees  of  Barnet  and  Henry  against  a  judgment 
creditor  of  the  assignors,  who  had  caused  tin  execution  to  be  levied 
upon  their  property  notwithstanding  the  assignment.  The  plaintiff 
claimed  the  property  under  the  assignment,  and  the  defendants  con- 
tended that  the  assignment  was  void,  and  did  not  pass  the  property  out 
of  the  assignors.  The  trusts  declared  in  that  case  were,  (1)  To  pa}T 
a  certain  debt  due  to  the  assignees ;  (2)  To  pay  all  the  other  creditors 
of  the  assignors  in  full,  if  the  property  should  be  sufficient;  if  not,  then 
ratably,  provided  they  should  several!}'  and  respectively  discharge  the 
assignors  from  all  further  liability  for  their  debts  ;  but  if  the  creditors 
or  an)r  of  them  should  refuse  to  give  such  discharge,  then  the  second 
trust  was  to  become  void,  and  the  trustees  were  directed  not  to  execute 
it.  They  were,  then,  3dly,  after  paying  the  debt  of  Hyslop  &  Co.,  the 
assignees,  to  hold  the  residue  in  trust  to  pay  the  whole  of  the  avails  to 
such  of  the  creditors  of  the  assignors  as  they  should  appoint,  as  soon 
as  such  refusal  should  be  known  to  them  ;  and  (4)  To  pay  the  residue 
to  the  assignors.  Here,  as  was  remarked  by  Judge  Van  Ness,  the  as- 
signment did  not  actual!}'  give  a  preference  to  any  of  the  creditors,  ex- 
cept Hyslop  &  Co. ;  but  it  was  an  attempt  on  the  part  of  the  debtors 
to  place  their  property  out  of  the  reach  of  their  creditors,  and  to  retain 
the  power  to  give  such  preference  at  a  future  time,  upon  their  own 
terms  and  conditions.  The  trust  for  the  benefit  of  all  the  creditors 
ceased  whenever  any  one  of  the  creditors  refused  to  come  in  on  the 
terms  prescribed,  and  the  property  was  then  held  in  trust  for  the  as- 
signors themselves  ;  and  as  the  creditors  could  not  reach  it  at  law,  it 
the  assignment  was  valid,  so  Judge  Van  Ness  held  that  they  could  not 
effectually  reach  it  in  equity.  For  if  an}'  one  should  file  a  bill  to  com- 
pel the  assignors  to  make  a  new  declaration  of  trust,  as  the  power  re- 
served was  to  select  whom  they  pleased,  if  a  decree  should  be  made 
ordering  a  new  declaration,  the  assignor  might  exclude  tlie  very  cred- 
itor who  had  filed  the  bill.  Under  such  circumstances,  no  creditor  would 
ever  file  a  bill.  That  assignment,  then,  differed  from  the  one  now  un- 
der consideration  in  two  essential  particulars:  (1)  It  reserved  to  the 
grantor  a  right  subsequently  to  control  the  property  by  appointing  new 
uses ;  and  (2)  the  power  of  any  one  creditor  effectually  and  beneficially 
to  compel  such  declaration  was  exceedingly  doubtful,  if  not  impos- 
sible. The  weight  which  these  circumstances  had  in  the  decision  of 
the  cause  may  be  subsequently  considered.  The  case  of  Murray  ?'• 
Riggs,  15  Johns.  R.  571,  shows  that  the  control  over  the  property 
which  the  assignor  there  reserved  was  of  itself  sufficient  to  avoid  the 
deed.  In  Austin  v.  Bell  the  assignment  contained  a  reservation  of 
$2,000  per  annum  for  a  limited  time  to  the  assignor.  It  also  exacted 


234  GROVER  V.   WAKEMAN.  [CHAP.  IV. 

from  the  creditors  who  were  to  be  benefited  by  it  a  general  release  ;  and 
it  then  provided  that  if  any  of  the  creditors  named  should  not  within  a 
limited  time  become  parties  to  the  assignment,  and  thereby  discharge 
the  assignor,  that  the  assignees  should  then  pa}T  to  the  assignors  the 
proportion  which  would  otherwise  have  gone  to  such  creditors  ;  and  it 
was  on  this  ground  principally  that  the  assignment  in  that  case  was 
held  void.  The  provision  for  the  grantors  themselves  was  then  sup- 
posed to  have  been  sanctioned  by  the  court  in  Murray  v.  Riggs ;  and 
Ch.  J.  Spencer  put  his  opinion  mainly  on  the  ground  that  by  the  pro- 
vision of  the  assignment  the  shares  of  such  of  the  creditors  as  should 
refuse  to  execute  it  were  to  revert  to  the  grantors  for  their  own  private 
benefit  and  use.  In  Seaving  v.  Brinckerhoff  the  assignment  also  con- 
tained the  condition  that  the  creditors  who  should  come  in  under  it 
should  give  a  full  discharge  of  their  demands  ;  and  if  any  of  them  re- 
fused, their  shares  were  to  be  held  in  trust  for  the  grantor.  Chan- 
cellor Kent  laid  great  stress  in  that  case  upon  the  fact  that  the 
assignment  did  not  embrace  all  the  property  of  the  assignor,  and  yet  ex- 
acted a  release  from  his  creditors  upon  a  partial  paj'tnent ;  he  says  the 
condition  was  oppressive  and  without  any  color  of  justice  in  this  case, 
inasmuch  as  the  assignment  was  not  general  of  all  the  property,  but 
'onty  of  a  specified  part ;  a  partial  assignment  upon  such  a  condition  is 
pernicious  in  its  tendency  if  it  be  not  fraudulent  in  its  design  ;  and  in 
relation  to  the  resulting  trust,  he  remarked  that  a  power  of  coercion 
over  the  creditor,  with  the  reservation  of  such  a  resulting  trust  to  the 
grantor  in  case  the  coercion  should  not  be  successful,  was  deemed  by 
the  Supreme  Court,  in  Hyslop  v.  Clarke,  to  be  a  badge  of  fraud  and  not 
a  fair  and  lawful  assignment. 

But  although  it  is  not  adjudged  in  any  of  these  cases  that  an  assign- 
ment is  fraudulent  and  void,  which  merely  makes  the  preference  given 
to  creditors  to  depend  upon  their  releasing  the  grantor,  but  which  at 
all  events  devotes  the  whole  property  to  the  payment  of  his  debts  with- 
out any  reservation  for  his  own  private  benefit ;  still,  it  cannot  be  con- 
tended that  they  sanction,  with  anything  like  the  authorit^y  of  a 
judgment,  the  contrary  doctrine.  I  am  inclined  to  think  that  the  weight 
of  professional  opinion  in  this  State  has  been  in  favor  of  the  validit}'  of 
such  assignments  ;  but  that,  so  far  as  it  depends  upon  our  own  adjudi- 
cations, the  question  is  still  open,  and  may  now  be  settled  by  this  court 
upon  principle. 

Ver}'  few  cases  are  to  be  found  upon  this  subject  in  the  English 
books ;  and  whenever  the  question  has  arisen  there,  it  has  generally 
been  upon  composition  deeds,  to  which  the  creditors  were  parties  ;  or 
has  been  more  or  less  affected  by  considerations  growing  out  of  their 
bankrupt  system.  4  T.  R.  166  ;  8  T.  R.  521.  In  the  case,  however,  of 
the  King  v.  Watson,  3  Price,  6,  in  the  exchequer  chamber,  it  must  be 
conceded  that  the  objection  to  the  assignment  which  we  are  now  con- 
sidering, existed  and  was  urged  against  its  validity,  and  that  the  objec- 
tion was  overruled  ;  there,  however,  as  in  the  other  cases,  the  principal 


SECT.  I.]  GEOVER    V.    WAKEMAN.  235 

question  was  whether  the  assignment  was  not  void  under  the  bankrupt 
laws.  The  case,  however,  is  a  very  bald  one,  and  is  entitled  to  very 
little  weight  as  authority.  The  opinion  is  exceedingly  brief,  and  refers 
to  no  cases. 

This  question  has  several  times  been  under  the  consideration  of  the 
Supreme  Court  of  Massachusetts  ;  but  it  has  generally,  if  not  always, 
been  so  connected  with  other  objections  to  the  assignment  that  it  is  ex- 
ceedingly difficult  to  say,  upon  a  review  of  all  those  cases,  what  the 
judgment  of  that  court  would  be  upon  the  naked  and  insulated  point 
which  we  are  now  considering.  Hatch  v.  Smith,  5  Mass.  42  ;  Widgefy 
v.  Haskell,  5  Mass.  144  ;  Ingraharn  v.  Geyer,  13  Mass.  146  ;  Hastings 
v.  Baldwin,  17  Mass.  552  ;  Harris  v.  Sumner,  2  Pick.  129.  Judge  Story 
had  occasion  to  consider  these  cases  in  Halsey  v.  Whitney,  4  Mason, 
229,  which  was  decided  in  October,  1826,  and  the  conclusion  which  he 
deduced  from  them  was,  that  this  precise  point  was  not  directly  de- 
cided in  any  of  them.  He  observed  that  there  were  intimations  in 
several  of  these  cases  which  would  justify  a  doubt  whether  the  court 
were  prepared  to  admit  the  validity  of  such  a  stipulation,  while  in 
others  which  contained  a  similar  provision  no  objection  was  taken  to  it 
by  the  counsel  who  argued  them,  or  b}-  the  court  in  their  judgment. 
His  conclusion  on  the  whole  was,  that  the  point  was  not  judicially  set- 
tled in  Massachusetts.  In  that  opinion  he  is  sustained  by  Chief  Justice 
Parker,  who,  in  Borden  v.  Sumner,  4  Pick.  265,  which  was  decided  in 
the  same  month  with  Halsey  v.  Whitnej',  obviously  considered  the 
question  as  still  open,  and  declined  expressing  any  definitive  opinion 
upon  the  subject,  as  it  was  not  necessary  to  the  decision  of  the  cause 
then  under  judgment.  The  subsequent  cases  of  Andrews  v.  Ludlow, 
5  Pick.  28,  and  Lupton  v.  Cutter,  8  Pick.  298,  leave  the  question  in 
Massachusetts  still  in  the  same  state  of  uncertainty.  The  most  that 
can  be  said  is,  that  in  several  of  the  cases,  although  the  assignment 
contained  this  provision,  the  objection  was  not  taken  either  by  the 
counsel  or  the  court.  Judge  Ware,  of  the  U.  S.  District  Court  for 
the  State  of  Maine,  in  the  case  of  G.  &  I.  Lord,  libellants,  v.  The  Brig 
Watchman,  reported  in  the  16th  No.  of  the  Amer.  Jurist,  284,  in  a 
very  elaborate  and  learned  opinion,  in  which  all  the  Massachusetts 
cases  are  referred  to,  also  came  to  the  conclusion  that  it  was  there 
still  an  open  question. 

In  Pennsylvania,  an  assignment  containing  a  stipulation  for  a  release 
was  sustained  in  Lippincott  v.  Barker,  2  Binney,  174.  Judge  Brecken- 
ridge,  however,  dissented,  and  Ch.  J.  Tilghman  and  Mr.  Justice  Yeates, 
whose  opinions  prevailed,  took  pains  to  put  themselves  upon  the  par- 
ticular circumstances  of  the  case.  The  Chief  Justice  observed,  p.  182  : 
"  It  being,  however,  to  be  distinctly  understood  that  my  opinion  is  con- 
fined to  the  circumstances  of  the  present  case  ;  for  there  are  man}-  and 
strong  objections  to  deeds  of  assignment  made  without  the  privity  of 
creditors,  and  excluding  all  who  do  not  execute  releases."  Vide  also 
Bnrd  v.  Smith,  4  Dall.  76. 


236  GEOVER   V.   WAKEMAN.  [CHAP.  IT. 

On  the  other  hand,  the  Supreme  Court  of  Errors  of  Connecticut, 
in  Ingraham  v.  Wheeler,  6  Conn.  277,  pronounced  an  assignment 
fraudulent  and  void  solely  on  the  ground  that  it  confined  the  distribu- 
tion of  the  property  assigned  to  those  creditors  who  should  give  the 
assignor  a  discharge.  It  was  the  decisive  point  in  the  case,  and  was 
fairly  met  and  decided  by  the^  court. 

The  same  principle  was  also  decided  in  Ohio,  in  Atkinson  v.  Jor- 
dan, 5  Hammond  Rep.  293. 

In  Pierpoint  v.  Graham,  4  Wash.  C.  C.  Rep.  232,  Judge  Washington 
sustained  an  assignment  containing  this  condition.  In  the  district 
court  in  Maine,  in  the  case  already  referred  to,  such  a  condition  was 
held  fraudulent.  And  Judge  Story,  in  Halsey  v.  Whitney,  4  Mason, 
230,  although  he  came  to  the  conclusion  with  obvious  doubt  and  hesi- 
tation, that  the  weight  of  authority  was  in  favor  of  the  validity  of  an 
assignment  with  such  a  condition,  did  not  hesitate  to  declare  that  if  the 
question  were  entirely  new  and  many  estates  had  not  passed  upon  the 
strength  of  such  assignments,  the  strong  inclination  of  his  mind  would 
be  against  their  validity.  It  is  very  clear  that  Judge  Story,  in  .coming 
to  the  conclusion  that  the  weight  of  authority  lay  upon  that  side  of  the 
question,  inferred  it,  as  Judge  Ware  has  expressed  it,  not  so  much 
from  the  authoritative  decisions  of  the  court,  as  from  the  silent  acquies- 
c§nce  of  the  public ;  not  that  it  had  been  clear!}'  settled,  or  distinctly 
recognized  by  the  judicial  tribunals,  but  that  it  had  slowly  ripened  into 
a  rule  of  the  common  law  of  Massachusetts  by  usage  and  custom. 

There  being,  then,  such  a  conflict  among  the  authorities,  and  so 
much  doubt  on  which  side  the  preponderance  lies,  it  seems  to  be  not 
only  proper  but  necessary  to  consider  the  question  with  reference  to  the 
general  principles  involved  in  it.  Every  conveyance  of  property  to 
trustees  is,  to  a  certain  extent,  a  hindering  and  delaying  of  creditors. 
It  interrupts  and  presents  obstacles  to  their  legal  remedies  ;  and  every 
such  assignment  is  absolutely  void,  if  it  does  not  appoint  and  declare 
the  uses  for  which  the  property  is  to  be  held  and  to  which  it  is  to  be 
applied.  A  provision  that  the  uses  shall  be  subsequently  declared  by 
the  assignor  will  not  do ;  they  must  accompany  the  instrument  and  ap- 
pear on  its  face,  in  order  to  rebut  the  conclusive  presumption  of  a 
fraudulent  intent,  which  would  otherwise  arise.  But  where  the  assignor 
parts  with  all  control  over  the  property,  and  devotes  it  absolutely  to 
the  benefit  of  his  creditors,  without  any  reservation  or  stipulations  for 
his  own  advantage,  the  honesty  of  his  intention  is  so  apparent,  and  the 
advantage  to  the  creditors  so  direct  and  decisive,  that  the}-  cannot  be 
said  to  be  obstructed  or  delayed  in  their  remedies.  But  where,  instead 
of  directly  distributing  his  property  among  his  creditors  as  far  as  it  will 
go,  he  places  it  beyond  their  reach  by  an  assignment,  not  merely  for 
the  purpose  of  saving  it  from  one  particular  creditor,  to  be  given  to 
another,  or  to  be  equally  divided  among  all,  but  for  the  purpose  of 
enabling  him  to  extort  from  some  or  all  of  them,  an  absolute  dis- 
charge of  their  debts  as  the  condition  of  receiving  a  partial  payment, 


SECT.  I.]  GROVER   V.   WAKEMAN.  237 

he  perverts  the  power  to  a  purpose  which  it  was  never  intended  to 
cover,  and  which  the  principle  on  which  the  right  to  give  preferences  is 
founded,  will  not  justif\r.  Why  should  a  debtor  be  permitted  in  this 
way  to  operate  upon  the  fears  of  his  creditors  and  coerce  them  into  his 
own  terms?  It  has  sometimes  been  said,  in  answer  to  this  view  of  the 
case,  that  there  is  nothing  immoral  or  unjust  in  a  debtor  in  embar- 
rassed circumstances,  and  who  is  unable  to  pay  all  his  debts,  making 
the  best  arrangement  in  his  power  with  his  creditors,  and  giving  the 
largest  dividend  or  the  whole,  to  those  who  will  settle  with  him  on  the 
best  terms  ;  and  if  he  caii  do  this  while  he  retains  his  property  in  his 
own  hands,  there  is  no  reason,  it  is  said,  why  he  should  not  be  per- 
mitted to  do  it  under  the  cover  of  an  assignment.  Parties  not  under 
legal  disabilities  ma}*  make  such  contracts  as  they  please  ;  and  if  they  are 
supported  by  a  consideration,  and  there  is  no  fraud  in  the  case,  they 
will  not  be  disturbed.  If  a  debtor,  therefore,  with  his  property  in  his 
own  hands  and  open  to  the  legal  pursuit  of  his  creditors,  can  satisfy 
them  that  it  is  for  their  interest  or  the  interest  of  any  of  them  to  ac- 
cept 2s.  6d.  in  the  pound,  and  give  him  an  absolute  discharge,  there 
is  no  legal  objection  to  it ;  the}*  treat  upon  equal  terms ;  the  ordinary 
legal  remedies  of  the  creditor  are  not  obstructed.  But  the  case  is  ma- 
terially changed  when  the  debtor  first  places  his  property  be3'ond  the 
reach  of  his  creditors,  and  then  proposes  to  them  terms  of  accommo- 
dation. He  obstructs  their  legal  remedies,  hinders  and  delays  them  in 
the  prosecution  of  their  suits,  by  putting  his  property  into  the  hands 
of  trustees,  with  the  view  of  getting  an  absolute  discharge  from  his 
debts,  and  exempting  his  future  acquisitions  from  all  liability.  It  has 
been  decided  in  this  court  that  the  reservation  of  the  least  pecuniary 
provision  for  the  assignor  or  his  family  renders  an  assignment  of  this 
description  fraudulent  and  void.  How  much  more  valuable  is  a  dis- 
charge from  his  debts  or  a  portion  of  them  to  an  insolvent  debtor  than 
a  temporary  pecuniary  pittance.  Judge  Van  Ness,  in  Hyslop  v.  Clarke, 
states  what  I  consider  to  be  the  sound  principle  upon  this  subject.  He 
says  an  insolvent  debtor  has  no  right  to  place  his  propert}'  in  such  a 
situation  as  to  prevent  his  creditors  from  taking  it,  under  the  process 
of  a  court  of  law,  and  to  drive  them  into  a  court  of  equity,  where  they 
must  encounter  expenses  and  delay,  unless  it  be  under  very  special  cir- 
cumstances and  for  the  purpose  of  honesth'  giving  a  preference  to  some 
of  his  creditors,  or  to  cause  a  just  distribution  of  his  estate  to  be 
made  among  them  all.  Judge  Spencer,  in  Austin  v.  Bell,  and  Chan- 
cellor Kent,  in  Seaving  v.  Brinckerhoff,  obviously  concurred  in  the 
soundness  of  that  position.  Judge  Story  expressed  his  approbation  of 
it  in  Halsey  v.  Whitne}'.  The  Supreme  Court  of  Errors  in  Connecticut 
adopted  it  in  Ingraham  v.  Wheeler,  and  it  was  most  happily  and  im- 
pressively amplified  and  illustrated  by  the  learned  judge  of  the  United 
States  District  Court  for  the  State  of  Maine,  in  the  case  to  which  I  have 
referred. 

It  is  time  that  some  plain,  simple,  but  comprehensive    principle 


238  GROVER   V.    WAKEMAN.  [CHAP.  IV. 

should  be  adopted  and  settled  upon  this  subject.  In  the  absence  of  a 
bankrupt  law,  the  right  of  giving  preferences  must  probablj*  be  sus- 
tained. Let  the  embarrassed  debtor  therefore  assign  his  property  for 
the  benefit  of  whom  he  pleases  ;  but  let  the  assignment  be  absolute  and 
unconditional ;  let  it  contain  no  reservations  or  conditions  for  the 
benefit  of  the  assignor  ;  let  it  not  extort  from  the  fears  and  apprehen- 
sions of  the  creditors,  or  any  of  them,  an  absolute  discharge  of  their 
debts  as  the  consideration  for  a  partial  dividend ;  let  it  not  convert  the 
debtor  into  a  dispenser  of  alms  to  his  own  creditor ;  and  above  all,  let 
it  not  put  up  his  favor  and  bounty  at  auction  under  the  cover  of  a 
trust  to  be  bestowed  upon  the  highest  bidder.  After  the  maturest  re- 
flection upon  this  subject,  I  have  come  to  the  conclusion  that  the  in- 
terests, both  of  debtor  and  creditor,  as  well  as  the  general  pui'poses  of 
justice,  would  be  promoted,  if  the  question  is  still  an  open  one,  b}-  con- 
fining these  assignments  to  the  simple  and  direct  appropriation  of  the 
property  of  the  debtor  to  the  payment  of  his  debts.  The  remnants  of 
many  of  these  insolvent  estates  are  now  wasted  in  litigation  growing 
out  of  the  complex  or  suspicious  character  of  the  provisions  of  these 
assignments.  One  device  after  another  to  cover  up  the  property  for 
the  benefit  of  the  assignor,  or  to  secure  to  him,  either  directly  or  in- 
directly, some  unconscientious  advantage,  has  from  time  to  time  been 
brought  before  our  courts  and  received  condemnation.  But  new  shifts 
and  devices  are  still  resorted  to,  and  will  continue  to  be  so,  until  some 
principle  is  adopted  upon  the  subject,  so  plain  and  simple  that  honest 
debtors  cannot  mistake  it,  and  fraudulent  ones  will  be  deterred  from  its 
violation  by  the  certainty  of  detection  and  defeat.  The  principle  to 
which  I  have  adverted,  it  appears  to  me,  if  adopted,  will,  to  a  very  con- 
siderable extent,  accomplish  that  object. 

But  there  is  another  provision  in  this  assignment  which,  it  appears  to 
me,  it  is  impossible  to  sustain.  It  is  that  which  gives  to  the  assignee 
full  power  and  liberty  to  compound  with  all  or  any  of  the  creditors 
in  such  manner  and  upon  such  terms  as  they  shall  deem  proper,  so, 
however,  as  not  to  interfere  with  or  depart  from  the  order  of  preference 
established  in  the  assignment.  The  effect  of  this  provision  is,  as  is 
stated  by  the  Chancellor,  to  perpetuate  the  right  of  giving  preferences 
by  vesting  in  the  assignees  an  arbitrary,  power  in  relation  to  these 
several  classes  of  creditors,  and  of  compounding  with  any  one  upon 
such  terms  as  they  may  think  proper.  I  do  not  see  how  any  other  con- 
struction can  be  given  to  it ;  it  has  repeatedly  been  decided  that  an  as- 
signment which  does  not  declare  the  uses,  but  reserves  to  the  assignor 
the  power  of  subsequently  doing  it,  is  fraudulent  and  void ;  and  if 
the  assignor  cannot  reserve  the  power  of  giving  preference  to  him- 
self, he  certainly  cannot  legally  confer  it  upon  his  assignee ;  the  same 
objection  in  principle  exists  in  both  cases.1 

1  Hudson  v.  Maze,  4  111.  578;  State  v.  Benoist,  37  Mo.  500,  512;  McConnell  v. 
Sherwood,  84  N.  Y.  522,  ace.  See  also  Smith  v.  Hurst,  10  Hare,  30;  Gazzam  v. 
Poyntz,  4  Ala.  374;  Skeevil  v.  Donaldson,  20  Kan.  165;  Mussey  v.  Noyes.  26  Vt.  462. 


SECT.  I.]  GROVEB  V.   WAKEMAN.  239 

The  next  and  only  remaining  objection  to  the  assignment  which  I 
shall  consider  is,  that  it  does  not  fix  the  time  within  which  the  assignees 
are  to  give  notice  to  the  creditors  in  class  No.  2  to  come  in  and  exe- 
cute the  discharge  and  receive  their  dividend.  After  paying  class  No. 
1,  the  assignees  are  to  pay  the  surplus  to  such  of  the  creditors  in  class 
No.  2  as  shall,  within  three  months  from  the  time  when  thereunto  in 
writing  requested  by  them,  agree  to  receive  their  dividend  and  execute 
a  discharge.  The  Chancellor  seems  to  suppose  that  the  assignees, 
under  this  provision,  may  give  notice  to  one  of  the  creditors  at  one 
time,  and  to  others  at  another  time,  and  that  each  must  come  in  within 
three  months  after  receiving  his  notice.  When  the  first  comes  in,  he 
must  execute  a  discharge,  although  there  is  no  certaint}*  whether  the 
others  will  be  called  upon,  or  that  they  will  have  an  opportunity  of 
coming  in  within  a  reasonable  time.  I  should  incline  to  the  opinion 
that  it  was  the  duty  of  the  assignees  to  give  notice  to  all  the  creditors 
at  the  same  time.  But  still,  the  objection  remains  that  that  time  is  not 
fixed  or  limited  by  the  assignment,  but  is  left  to  their  discretion  ;  and 
that  the  creditors  would  have  no  remedj'  for  an  unreasonable  delay  on 
the  part  of  the  assignees,  except  by  a  resort  to  a  court  of  equity.  This 
objection  does  not  strike  me  with  as  much  force  as  it  appears  to  have 
done  the  chancellor.  Where  there  is  nothing  fraudulent  or  suspicious 
in  the  trust  itself,  and  from  the  nature  of  the  case,  it  is  seen  to  be 
necessary  that  some  latitude  of  discretion  in  relation  to  it  should  be 
given  to  the  assignees,  I  am  not  prepared  to  say  that  the  circumstance, 
that  there  is  no  remedy  for  an  abuse  of  that  discretion,  except  by  a  re- 
sort to  a  court  of  equity,  is  sufficient  to  avoid  the  trust.  To  a  certain 
extent,  that  may  have  been  the  fact  in  the  case.  But  where  a  matter, 
affecting  the  rights  and  interests  of  creditors,  which  might  and  ought  to 
have  been  made  definite  and  certain,  is  left  to  the  discretion  of  as- 
signees, different  considerations  arise ;  and  I  should  incline  to  the  opin- 
ion that  it  would  be  fraudulent.  It  is  unnecessary,  however,  to  dwell 
upon  this  point,  as  I  hold  the  assignment  fraudulent  upon  the  other 
grounds  which  have  been  stated. 

I  also  abstain  from  an}-  discussion  of  the  question,  whether  the  debt 
of  the  Messrs.  Beach,  the  creditors  first  named  in  class  number  one, 
was  a  debt  due  from  the  firm  of  Grover  and  Gunn,  or  was  the  individ- 
ual debt  of  one  of  them  ;  and  admitting  it  to  have  been  an  individual 
debt,  what  influence  it  would  have  upon  this  assignment.  It  is  an  im- 

White  v.  Monsarrat,  18  B.  Mon.  809;  Lininger  v.  Raymond,  9  Neb.  40;  Watkins  »>. 
Wallace,  19  Mich.  57  (debts  which  assignee  "may  deem  bad  or  doubtful."),  contra. 

In  some  States  statutes  have  been  passed  giving  an  assignee  power  to  compromise 
debts.  See  23  Lawyers'  Rep.  Ann.  579,  n. 

A  provision  authorizing  the  assignee  to  compromise  debts  due  the  assignor  is  valid. 
White  v.  Monsarrat,  18  B.  Mon.  809;  Robins  v.  Embry,  Sm.  &  Mar.  207;  McConnell 
v.  Sherwood,  84  N.  Y.  522;  Bagley  v.  Bowe,  105  N.  Y.  171 ;  Conkling  v.  Coonrod,  6 
Ohio  St.  611. 

An  assignment  made  with  the  design  to  force  a  compromise  with  a  creditor,  though 
good  on  its  face,  is  fraudulent.  Bennett  v.  Ellison,  23  Minn.  242. 


240  GROVER   V.   WAKEMAN.  [CHAP.  IV. 

portant  question  which.  I  agree  with  the  Chancellor,  ought  to  be  set- 
tled in  a  case  where  there  is  no  dispute  about  the  facts. 
I  am  for  affirming  the  decree  below. 

After  the  several  opinions  delivered  in  the  cause  had  been  read,1 
Mr.  Justice  SUTHERLAND  proposed  the  following  resolution  for  adop- 
tion :  "  Resolved,  that  the  assignment  is  void,  because  it  makes  the 
preference  given  to  the  creditors  of  the  assignors,  designated  as  class 
No.  2,  to  depend  upon  the  condition  that  the  preferred  creditors  shall 
give  the  assignors  an  absolute  discharge  of  their  debts;"  and,  on  the 
question  being  put,  "  Shall  this  resolution  be  adopted?"  the  members 
of  the  court  voted  as  follows  : 

In  the  affirmative.  —  The  PRESIDENT,  Chief  Justice  SAVAGE,  Jus- 
tices SUTHERLAND  and  NELSON,  and  Senators  ARMSTRONG,  BRARDS- 
LEY,  CONKLIN,  CROPSET,  DEITZ,  LYXDE,  MACDONALD,  SHERMAN, 
STOWER,  TRACY,  VAN  SCHAICK — 15. 

In  the  negative.  —  Senators  EDMONDS,  GANSEVOORT,  GRIFFIN,  Su- 
DAM,  WESTCOTT  —  5. 

And  the  court  accordingly  affirmed  the  decree  of  the  chancellor,  the 
final  vote  being  the  same  as  on  the  passage  of  the  resolution.2 

1  The  opinions  of  Senators  EDMONDS  and  TRACY  are  omitted. 

2  Perry  Ins.  Co.  v.  Foster,  58  Ala.  502  ;  Danner  n.  Brewer,  69  Ala.  191  (statutory)  ; 
Collier  v,  Davis,  47  Ark.  397  ;  Dnggau   v.  Bliss,  4  Colo.  223 ;  Ingraham  v.  Wheeler, 
6  Conn.  277,  282;  Hayes  v.  Johnson,  6  D.  C.  174;   Howell  v.  Dixon,  21  Fla.  413; 
McBride  r.  Bohanan,  50  Ga.  527  ;  Johnson  v.  Farnum,  56  Ga.  144 ;  Conkling  v.  Car- 
son, 11  111.  503;  Townsend  v.  Coxe,  151  111.  62,  68;  Butler  v.  Jaffray,  12  Ind.  504; 
Franzen  v.  Hutchinson,  94  la.  95  ;  Graves  v.  Roy,  13  La.  454  ;  Hubbard  v.  McNaugh- 
ton,  43  Mich.  220 ;  May  v.  Walker,  35  Minn.  194  (otherwise  by  statute  see  Farwell  ;-. 
Brooks,  65  Minn.  184)  ;  Robins  v.  Embry,  Smedes  &  M.  207  (see  Mayer  v.  Shields,  59 
Miss.  107) ;  Jeffries  v.  Blackmann,  86  Mo.  350 ;  Moore  v.  Carr,  65  Mo.  A  pp.  64 ;  First 
Nat.  Bank  v.  Newman,  62  N.  H.  410;  Owen  v.  Arvis,  2  Dutch.  22,  44  (see  also  North 
Ward  Nat.  Bank  v.  Conklin,  51   N.  J.  Eq.  7) ;  Goodrich  v.  Downs,  6  Hill,  438,  439  ; 
Haydock  v.  Coope,  53  N.  Y.  68,  73  ;  Palmer  v.  Giles,  5  Jones,  Eq.  75 ;    Repplier  v. 
Orrich,  7  Ohio,  246  ;  Miners'  Nat.  Bank  Appeal,  57  Pa.  193, 199  (statutory) ;  Wilde  v. 
Rawliugs,  1  Head,  34  ;  Ware  v.  Wanless,  2  Wyo.  144,  ace. 

King  v.  Watson,  3  Price  Ex.  6  (see  also  Janes  v.  Whitbread,  11  C.  B.  406)  ;  Brashear 
v.  West,  7. Pet.  608  ;  Halsey  v.  Whitney,  4  Mason,  206,  229 ;  Talley  v.  Curtain,  54  Fed. 
Rep.  43,  50;  Rankin  v.  Lodor,  21  Ala.  380;  Clayton  v.  Johnston,  36  Ark.  406  (over- 
ruled) ;  Doe  v.  Scribner,  41  Me.  277  ;  Coakley  v.  Weil,  47  Md.  277  ;  Nostrand  v.  Atwood, 
19  Pick.  281 ;  Hewlett  v.  Cutler,  137  Mass.  285  ;  Livingston  v.  Bell,  3  Watts,  198  ;  Lea's 
Appeal,  9  Pa.  St.  504 ;  Smith  v.  Millett,  11  R.  I.  528;  Claflin  v.  Iseman,  23  S.  C.  416, 
417  ;  Boyd  v.  Haynie,  83  Tex.  7 ;  Kellog  ?;.  Cayce,  84  Tex.  213  (statutory)  ;  Hall  v. 
Denison,  17  Vt.  310;  Gordon  v.  Cannon,  18  Gratt.  387  ;  Long  v.  Meriden  Britannia 
Co.,  94  Va.  594 ;  Clarke  v.  Figgins,  27  W.  Va.  663,  contra. 


SECT.  I.]  WEAVER  V.   HAVJLAND.  241 


SECTION   I.  (continued), 
(d)    STATUTES  OF  LIMITATIONS. 

WEAVER  v.  HAVILAND. 
NEW  YORK  COURT  OP  APPEALS,  MAY  3-JuNE  5,  1894. 

[Reported  in  142  New  York,  534.] 

ANDREWS,  Ch.  J.     This  is  a  judgment  creditor's  action,  and  the  only 
defence  relied  upon  at  the  trial  was  the  Statute  of  Limitations.     The 
action  was  commenced  February  13,  1892.     It  appears  from  the  plead- 
ings that  Phebe  Haviland,  mother  of  the  defendant,  took  under  the  will 
of  her  husband,  who  died  September  17,  1878,  the  use  of  his  real  estate 
and  the  income  of  his  personal  propert}1  for  life.      His  real  estate  con- 
sisted of  a  house  and  lot  in  Geneva,  in  this  State,  and  he  held  a  mort- 
gage on  lands  in  Michigan,  executed  by  Henry  S.  Weaver  and  wife. 
On  the  13th  day  of  April,  1880,  Phebe  Haviland,  as  executor  of  her 
husband's  will,   she  then  being  in  the   State  of  Michigan,  sold  and  ^^A/VMI 
assigned  the  mortgage  to  one  Fish  for  the  sum  of  $2,600,  falsely  repre-  ^-  -^ 
senting  to  Fish  that  that  sum  was  due  and  unpaid  thereon,  whereas  in 
fact  there  was  due  and  unpaid  only  the  sum  of  $2,100.     Fish,  upon       /af 
ascertaining  the  fact,  commenced  an  action  in  the  courts  of  Michigan _ 
against  Phebe  Haviland  to  recover  back  the  sum  paid  in  excess  of  the 
amount  due  on    the    mortgage,   and    on    June   9,   1881,  recovered 
judgment  against  her  in  the  action.     An  action  on  this  judgment  was 
subsequent!}'  brought  in  the  Supreme  Court  of  this  State  January  28, 
1886,  and  judgment  was  recovered   thereon  against  Phebe  Haviland 
March  9,  1886,  for  $667.47,  and  execution  thereon  was  issued  and 
returned  unsatisfied.     Phebe  Haviland,  at  the  time  of  the  death  of  her 
husband  and  ever  thereafter,  was  a  resident  of  the  State  of  New  York. 
It  is  found  that  shortly  before  the  recovery  of  the  Michigan  judgment, 
and  on  or  about  June   2,   1881,  Phebe    Haviland    conveyed  to  the 
defendant  William  W.  Haviland  her  life  estate  in  the  house  and  lot, 
and  gave  to  him  the  moneys  received  by  her  from  Fish  on  the  transfer 
of  the  mortgage,  without  consideration,  and  for  the  purpose  of  placing 
her  property  out  of  her  hands,  so  that  the  same  could  not  be  reached    jj ,,  * -TV*-, 
upon  a  judgment  in  the  action.     Phebe  Haviland  died  intestate  August 
2,  1888.     This  action  is  brought  to  reach  the  interest  of  Phebe  Havi-  * 
land  in  the  property  so   fraudulently  transferred  to   the   defendant.  x^tU*. 
There  is  another  fact  disclosed  by  the  evidence  as  to  which  there  is  no 
finding,  but  which  is  deemed  important  by  the  counsel  for  the  defendant, 
viz.,  that  the  money  paid  on  the  mortgage  by  Fish  was  at  the  time 
received  by  the  defendant,  and  was  retained  by  him  as  his  own,  with 
the  consent  of  Phebe  Haviland.    But  if  this  finding  had  been  made,  the 


242  WEAVER   V.   HAVILAND.  [CHAP.  IV. 

evidence  would  have  justified  the  further  finding  that  the  defendant 
assumed  to  act  in  the  transaction  as  the  agent  of  his  mother,  and  that 
Fish  supposed  he  was  so  acting,  and  had  no  information,    until  the 
examination  of  the  defendant  in  supplementary  proceedings  shortly  be- 
fore the  bringing  of  this  action,  that  the  money  had  been  retained  by  him. 
The  limitation  of  time  for  bringing  actions  in  the  nature  of  a  creditor's 
bill  to  set  aside  a  conveyance  or  transfer  made  by  the  judgment  debtor 
in  fraud  of  creditors  is  prescribed  by  section  382  of  the  Code  of  Civil 
Procedure.      By  the  fifth  subdivision  of  that  section  a  creditor's  action 
must  be  commenced  within  six  years  "  after  the  cause  of  action  has 
accrued."     Such  an  action  is  to  procure  a  judgment  "  other  than  for  a 
sum  of  money  on  the  ground  of  fraud  in  a  case  which  on  the  31st  da}r 
of  December,  1846,  was  cognizable  by  the  Court  of  Chanceiy."     The 
words  "other  than  for  a  sum  of  money  "  in  subdivision  5  included 
those  cases  in  which  equitable  relief  is  required,  although  as  part  of  the 
ultimate  relief  a  money  judgment  is  also  demanded.     Carr  v.  Thomp- 
son, 87  N.  Y.  169.     Unless,  therefore,  the  right  of  action  to  set  aside 
the  fraudulent  transfer  from  Phebe  Haviland  to  the  defendant  accrued 
to  the  plaintiff  more  than  six  years  prior  to  February  13,  1892,  the  day 
of  the  commencement  of  the  action,  the  action  was  not  barred.     The 
righ t  of  Fish  to  bring  an  action  to  set  aside  the  transfer  did  not  accrue 
until  he  had  recovered  a  judgment  in  this  State  againstPhebe  Haviland 
and  the  return  of  an  execution  unsatisfied.     Until  his  claim  against 
Phebe  Haviland  had  ripened  into  a  judgment  he  stood  jis  a  general 
creditor  merely,  and  was  not  in  a  situation  to  assail  the  transfer  to  Jhe^ 
defendant.     The  authorities  upon  tlilsTpoint  are  numerous  and  decisive. 
Reubens  v.  Joel,  13  N.  Y.  488  ;  Dunlevy  v.  Tallmadge,  32  N.  Y.  457 ; 
Geery  v.  Geery,  63  N.  Y.  252  ;  Adsit  v.  Butler,  87  N.  Y.  585.    The  time 
when  the  fraud  was  committed  is  not  the  period  from  which  the  limitation 
is  to  be  computed,  but  the  time  when  the  plaintiff  had  acquired  a  stand- 
ing to  assail  it.      The  present  action  was  commenced  within  six  years 
after  Fish  had  recovered  his  judgment  here.     The  defendant,  in  the 
absence  of  fraud  or  collusion,  cannot  question  the  validity  of  the  claim 
upon  which  it  was  rendered,  and  he  acquired  no  immunity  from  pursuit 
because  of  the  time  which  intervened  between  the  fraudulent  transaction 
and  the  rendition  of  the  judgment.     Decker  v.  Decker,  108  N.  Y.  128. 
The  clause  in  sub.  5,  sec.  382,  following  the  clause  above  quoted,  "  the 
cause  of  action  in  such  a  case  is  not  deemed  to  have  accrued  until 
the  discover}'  by  the  plaintiff  or  the  person  under  which  he  claims  of  the 
facts  constituting  the  fraud,"  does  not  help  the  defendant.     This  clause 
was  added  to  enlarge  the  time  for  bringing  the  action  beyond  the  six 
years  in  the  case  specified.     It  was  not  intended  to  make  the  date  of  the 
discovery  of  the  fraud  the  time  of  the  accruing  of  the  right  of  action  in 
cases  where  the  fraud  was  known,  but  the  plaintiff  had  not  established 
his  claim  by  judgment.     The  clause  was  inserted  to  provide  for  a  class  of 
cases  where  the  right  of  action  was  perfect,  but  the  fraud  had  not  been 
discovered  until  a  subsequent  period.     Gates  v.  Andrews,  37  N.  Y.  657. 


SECT.  I.]  WEAVER   V.   HA.VILAND.  243 

It  is,  however,  a  sufficient  answer  to  the  claim  based  on  this  clause  of  sub. 
5  that  there  is  no  evidence  or  finding  that  the  plaintiff  or'  his  assignor, 
Fish,  had  any  notice  of  the  fraudulent  transfer  until  shortly  before  the 
commencement  of  the  action. 

The  further  claim  is  made  that  a  cause  of  action  for  money  had  and 
received  could  have  been  maintained  by  Fish  against  the  defendant  to 
recover  the  overpayment  on  the  mortgage,  immediately  after  the  money 
came  to  his  hands,  he  having  received  and  retained  it  without  considera- 
tion, and  that  this  cause  of  action  was  barred  by  the  lapse  of  six  years 
and  before  this  action  was  brought.  The  defendant  may  be  right  in  his 
contention.  Roberts  v.  Ely,  113  N.  Y.  128.  But  assuming  this  to  be 
true,  the  present  action  is  not  based  on  an  original  liability  of  the 
defendant  arising  from  his  connection  with  the  sale  of  the  mortgage. 
The  plaintiff's  assignor  did  not  elect  to  proceed  against  the  defendant 
upon  this  liabilit}'.  He  brought  his  action  against  Phebe  Haviland,  the 
principal  in  the  transaction, "and  on  recovering  judgment  against  her, 
brought  this  action  based  upon  that  judgment,  to  charge  the  defendant 
on  account  of  his  fraudulent  dealings  with  her  to  the  prejudice  of  her 
creditors.  The  cause  of  action  is  entirely  distinct  from  the  cause  of 
action  against  him  for  money  had  and  received,  and  is  in  no  way  de- 
pendent upon  his  original  relation  to  the  transfer  of  the  mortgage  or  the 
recover}'  had  thereon.  He  is  called  upon  to  answer  for  the  propert}'  of 
Phebe  Haviland,  received  b}-  him  in  fraud  of  her  creditors.  Whether  he 
was  connected  with  the  original  fraud  in  the  sale  of  the  mortgage  is 
wholly  immaterial  in  the  present  action,  except  as  it  may  reflect  upon 
his  fraudulent  intent  in  his  subsequent  dealings  with  Phebe  Haviland. 

We  think  the  defence  of  the  Statute  of  Limitations  failed,  and  the 
judgment  should,  therefore,  be  affirmed,  with  costs. 

All  concur.  Judgment  affirmed. l 

1  There  is  great  diversity  of  decision  in  regard  to  the  Statute  of  Limitations  as  ap- 
plied to  fraudulent  conveyances.  Not  only  do  the  statutes  themselves  fix  various 
terms,  but  in  the  same  jurisdictions  different  rules  are  often  applied  in  law  and  in 
equity,  and  different  rules  are  applied  where  real  estate  is  fraudulently  conveyed,  from 
those  applied  to  transfers  of  personal  property.  Besides,  no  uniform  rule  can  be  stated 
as  to  the  effect  of  fraudulent  concealment  of  a  cause  of  action,  or  as  to  the  time  when 
the  plaintiff's  cause  of  action  is  held  to  accrue. 

The  creditor's  right  is  subject  to  least  limitation  in  England.  There,  so  long  as 
the  creditor's  claim  is  itself  not  barred  by  the  statute!  his  right  to  set  aside  a  fraudulent 
conveyance,  and  to  have  equitable  as  well  as  legal  relief  for  the  purpose,  is  not  barred, 
though  the  fraudulent  conveyance  may  have  been  made  many  years  before  and  the 
creditor  may  have  had  full  knowledge  of  the  facts.  In  re  Maddever,  27  Ch.  D.  523. 
In  Michigan  it  has  also  been  said  that  mere  delay  is  not  enough  to  debar  a  creditor. 
Corbitt  v.  Cutcheon,  79  Mich.  41.  Conf.  Cntcheon  v.  Buchanan,  88  Mich.  594 ;  Cut- 
cheon  v.  Corbitt,  99  Mich.  578.  So  in  North  Carolina,  Pickett  v.  Pickett,  3  Dev.  6 ; 
(But  see  N.  C.  Code,  §  155,  sub  sec.  9 ;  Osborne  v.  Wilkes,  108  N.  C.  651) ;  and  in  New 
Jersey,  Burne  v.  Partridge,  61  N.  .1.  Kq.  434. 

In  this  country  it  in  generally  held,  however,  that  not  only  the  creditor's  claim,  but 
his  subsidiary  right  to  attack  tlie  fraudulent  conveyance,  may  be  barred  by  lapse  of 
time.  In  a  few  States  possession  by  the  fraudulent  grantee  of  property  conveyed  — 
at  least  if  it  is  real  estate  —  bars  recovery  by  the  creditor  without  reference  either  to  the 


244  WEAVER   V.   HAVILAND.  [CHAP.  IV. 

time  when  his  right  accrued  or  his  knowledge  of  the  fraud.  Snedicor  v.  Watkins,  71 
Ala.  48  (see  also  Smith  v.  Hall,  103  Ala.  235) ;  Rohbins  v.  Sackett,  23  Kan.  301 ; 
Welcker  v.  Staples,  88  Tenn.  49.  See  also  Bobb  v.  Woodward,  50  Mo.  95  ;  Potter  v. 
Adams,  125  Mo.  118.  In  Indiana  the  rule  is  the  same,  unless  there  has  been  some 
trick  to  prevent  inquiry  or  some  act  of  positive  concealment.  Law  v.  Smith,  4  Ind. 
56;  Musselmau  v.  Kent,  33  Ind.  452;  Lemster  v.  Warner,  137  Ind.  79.  See  also 
Sankey  v.  McElevey,  104  Pa.  265 ;  Scranton,  etc.  Co.  v.  Laekawanna,  etc.  Co.  107  Pa. 
136. 

But  in  most  jurisdictions  time  does  not  run  against  the  creditor  until  he  has  had 
notice  of  the  fraud.  This  is  so  provided  by  statute  in  many  States,  and  is  the  prevailing 
rule  in  equity  without  the  aid  of  a  statute.  An  overruled  decision  by  Lord  Mansfield 
that  fraud  is  a  good  replication  to  a  plea  of  the  Statute  of  Limitations  in  an  action  at  law 
has  also  had  some  following  in  this  country.  See  Wood  on  Limitations,  §§  274-276. 
A  creditor  who  might  by  due  diligence  have  discovered  the  facts  has  been  held  not 
within  this  protection.  Little  v.  Reynolds,  101  Ga.  594;  Wright  v.  Davis,  28  Neb. 
479.  But  see  contra,  Way  v.  Cutting,  20  N.  H.  187 ;  Preston  v.  Cutter,  64  N.  H. 
461  (con/.  Hathaway  v.  Noble,  55  N.  H.  508).  Likewise  the  recording  of  the  deed 
alleged  to  be  fraudulent  has  been  held  to  affect  creditors  constructively  with  notice. 
Sims  v.  Gray,  93  la.  38;  Cockrell's  Exec.  v.  Cockrell,  (Ky.)  15  S.  W.  Rep.  1119; 
Rogers  v.  Brown,  61  Mo.  187  ;  Hughes  v.  Littrell,  75  Mo.  573 ;  Potter  v.  Adams,  125 
Mo.  118 ;  Gillespie  v.  Cooper,  36  Neb.  775. 

Furthermore,  though  the  fraud  be  discovered,  time  does  not  begin  to  run  unless 
the  creditor  has  at  that  time  a  right  to  begin  proceedings  to  avoid  the  transfer.  A 
judgment  against  the  debtor  is  a  prerequisite  to  such  proceedings  at  common  law. 
14  Am.  and  Eng.  Encyc.  of  Law  (2d  ed.),  315.  There  is,  therefore,  no  right  until 
the  judgment  is  obtained.  Accordingly,  as  held  in  the  principal  case,  time  does  not 
begin  to  run  until  that  moment.  Brown  v.  Campbell,  100  CaL  635 ;  Jones  v.  Heed, 
I  Humph.  335  (changed  by  statute,  Ramsey  v.  Quillen,  5  Lea,  184);  Comptou  v. 
Perry,  23  Tex.  414 ;  Martel  v.  Somers,  26  Tex.  551.  In  Alabama,  Arkansas,  In- 
diana, Maryland,  Massachusetts,  Mississippi,  North  Carolina,  Ohio,  South  Carolina, 
Tennessee,  Virginia,  West  Virginia,  at  least,  by  statute,  a  creditor  may  set  aside  a 
fraudulent  conveyance  without  first  getting  judgment.  See  14  Am.  and  Eng.  Encyc. 
of  Law  (2d  ed.),  319.  In  such  Slates  the  statute  begins  to  run  immediately  from  the 
time  of  the  discovery  of  the  fraud.  Combs  v.  Watson,  32  Ohio  St.  228;  Ramsey  v. 
Quillen,  5  Lea,  184  ;  McBee  v.  Burden,  7  Lea,  731  ;  Welcker  v.  Staples,  88  Teun.  49. 
In  some  cases  relief  has  been  denied  by  courts  of  equity  because  of  laches,  though 
no  Statute  of  Limitations  had  run.  Frenche  v.  Kitchen,  53  N.  J.  Eq.  37  ;  Hathaway  v. 
Noble,  55  N.  H.  508  ;  Eigelberger  v.  Kibler,  1  Hill  Ch.  113.  See  also  Bank  of  Charles 
ton  v.  Dowling,  52  S.  C.  345. 


SECT.  II.]  INTRODUCTORY   NOTE.  245 

/ 
SECTION    II. 

PREFERENCES.1 

INTRODUCTORY   NOTE. 

THE  English  law  in  regard  to  preferences  affords  little  assistance  in 
the  consideration  of  the  American  law.  The  early  bankruptcy  statutes 
did  not  forbid  preferences,  and  they  were  first  declared  invalid  on  the 
ground  that  they  were  fraudulent.  Lord  Mansfield  is  regarded  as  the 
originator  of  this  doctrine.  See  Worsley  v.  De  Mattos,  1  Burr.  467 ; 
Alderson  v.  Temple,  4  Burr.  2235  ;  Martin  v.  Pewtress,  4  Burr.  2477 ; 
Harman  v.  Fishar,  Cowp.  117;  Rush  v.  Cooper,  Cowp.  629.  As  the 
doctrine  was  of  judicial  creation,  and  as  the  basis  of  it  was  that  the 
debtor  was  committing  a  fraud,  it  was  natural  that  somewhat  narrow 
limits  should  be  set.  Especially  it  seemed  that  if  the  debtor  did  not 
wish  to  give  a  creditor  an  unfair  advantage,  there  could  be  no  fraud  on 
his  part  and  hence  no  fraudulent  preference.  It  was  necessary,  there- 
fore, that  the  preferential  payment  or  transfer  should  be  (1)  made  in 
contemplation  of  bankruptcy  and  (2)  made  voluntarily. 

As  to  the  first  requisite,  in  several  cases  it  was  held  necessary  that 
the  debtor  should  in  fact  intend  to  become  a  bankrupt.  Morgan  v. 
Brundrett,  5  B.  &  Ad.  289  ;  Atkinson  v.  Brindall,  2  Bing.  N.  C.  225  ; 
Abbott  v.  Burbage,  2  Scott,  656;  Strachan  v.  Barton,  11  Ex.  647. 
Other  cases  held  it  sufficient  if  the  debtor  was  in  sucli  a  condition  of 
utter  insolvency  that  no  reasonable  man  could  fail  to  anticipate  bank- 
ruptcy. Gibson  v.  Muskett,  4  M.  &  G.  160 ;  Gibson  v.  Boutts,  id. 
169 ;  Ex  parte  Simpson,  De  G.  9  ;  Aldred  v.  Constable,  4  Q.  B.  674. 
But  mere  insolvency  certainly  was  always  insufficient. 

The  second  requisite  has  given  rise  to  a  great  number  of  decisions 
involving  somewhat  artificial  distinctions.  If  the  payment  was  made 
because  of  pressure  on  the  part  of  the  creditor  the  transaction  cannot 
be  avoided.  Van  Casteel  v.  Booker,  2  Ex.  691.  If  the  debtor  was 
induced  by  several  considerations,  among  others  a  desire  to  prefer,  the 
question  is  whether  that  was  the  dominant  motive.  Ex  pnrte  Griffith, 
23  Ch.  D.  69;  Re  Eaton,  [1897]  2  Q.  B.  16.  If,  however,  the  object 
of  the  debtor  was  to  escape  a  criminal  prosecution  (Ex  parte  Taylor, 
18  Q.  B.  D.  295  ;  Sharp  ».  Jackson,  [1899]  A.  C.  419),  or  to  protect  a 
surety  from  liability  (Re  Mills,  58  L.  T.  N.  s.  871).  or  to  avoid  the  bnr 
of  the  Statute  of  Limitations  (Re  Lane,  23  Q.  B.  D.  74),  or  to  fulfil 
a  supposed  legal  duty  (Re  Fletcher,  9  Mor.  8  ;  Re  Vingoe,  1  Man. 
416),  there  is  no  preference.  A  valid  bill  of  sale  given  to  correct  a 
mistake  invalidating  a  former  one  is  not  a  preference.  Re  Twcedale, 

1  For  convenience  of  treatment  this  portion  covers  the  subject  of  preferences  regarded 
not  only  as  acts  of  bankruptcy,  but  from  other  points  of  view. 


INTRODUCTORY   NOTE.  [CHAP.  IV. 

[1892]  2  Q.  B.  216.  Nor  does  payment  by  a  trader  of  hills  of  exchange 
in  due  course  raise  an)-  inference  of  an  intention  or  view  to  prefer 
"  because  in  the  ordinary  course  of  business  a  man  must  either  meet 
his  bills  or  put  up  his  shutters."  He  Clay,  3  Mans.  31.  But  if  the 
payment  of  a  bill  is  out  of  the  usual  course  of  business  it  is  otherwise. 
Re  Eaton,  [1897]  2  Q.  B.  16. 

There  was  no  statutory  provision  in  the  English  bankruptcy  acts  in 
regard  to  preferences  until  the  act  of  1869  was  passed.  Section  92  of 
that  act,  which  is  substantially  reproduced,  except  in  one  particular, 
in  section  48  of  the  present  act,  passed  in  1883,  provides  for  the 
avoidance  of  preferences.  The  latter  section  reads  as  follows  :  — 

"(1)  Every  conveyance  or  transfer  of  property,  or  charge  thereon 
made,  every  payment  made,  even-  obligation  incurred,  and  every  judi- 
cial proceeding  taken  or  suffered  by  any  person  unable  to  pay  his  debts 
as  they  become  due  from  his  own  money  in  favour  of  an}-  creditor,  or 
any  person  in  trust  for  any  creditor,  with  a  view  of  giving  such  creditor 
a  preference  over  the  other  creditors,  shall,  if  the  person  making,  taking, 
paying,  or  suffering  the  same,  is  adjudged  bankrupt  on  a  bankruptcy 
petition  presented  within  three  months  after  the  date  of  making,  taking, 
paying,  or  suffering  the  same,  be  deemed  fraudulent  and  void  as  against 
the  trustee  in  bankruptcy.  (2)  This  section  shall  not  affect  the  rights 
of  any  person  making  title  in  good  faith  and  for  valuable  consideration 
through  or  under  a  creditor  of  the  bankrupt." 

In  section  92  of  the  act  of  1869  the  proviso  at  the  end  of  the  section 
was  that  the  section  should  "  not  affect  the  rights  of  an}'  purchasu-r. 
payee,  or  incumbrancer  in  good  faith  for  valuable  consideration," 
These  words  were  held  to  include  and  protect  a  creditor  who  had  re- 
ceived payment  in  ignorance  that  his  debtor  was  insolvent  or  intended 
to  prefer  him.  Butcher  v.  Stead,  L.  R.  7  H.  L.  839.  Under  the 
present  act  such  a  construction  seems  impossible. 

The  provisions  of  section  92  of  the  act  of  1869  and  section  48  of 
the  act  of  1883,  abrogated  the  necessity  for  a  payment  to  be  made  in 
contemplation  of  bankruptcy  in  order  to  be  a  fraudulent  preference;, 
substituting  as  requirements  that  the  payment  must  be  made  when  the 
debtor  is  unable  to  pay  his  debts  when  they  become  due  and  actually 
becomes  bankrupt  within  three  months.  But  the  requirement  of  volun- 
tary action  on  the  part  of  the  debtor  is  still  in  full  force.  "  With  a 
view  of  giving  such  creditor  a  preference  "  has  been  held  to  mean  "  with 
the  dominant  motive  of  giving  such  a  preference."  See  cases  above 
cited.  Almost  these  identical  words  in  the  American  statutes  have  re- 
ceived a  very  different  construction,  as  the  cases  printed  below  indicate. 

What  has  been  said  hitherto  relates  to  the  right  on  the  part  of  a 
trustee  in  bankruptc}-  to  avoid  and  recover  a  preferential  payment  or 
transfer.  But  preferences  are,  since  the  act  of  1883,  also  important  as 
acts  of  bankruptcy.  Although  the  framer  of  the  act  of  1869  believed 
that  that  act  not  only  invalidated  preferences,  but  also  made  them  acts 
of  bankruptcy,  Eden  on  Bankruptcy,  25,  the  court  held  otherwise. 


SECT.  II.]      CHICAGO   TITLE,    ETC.    CO.   V.   ROEBLING'S   SONS   CO.         247 

Exparte  Hodgkin,  L.  R.  20  Eq.  746;  Ex  parte  Stubbias,  17  Ch.  D. 
58.  The  act  of  1883  in  section  4,  however,  expressly  names  prefer- 
ences as  acts  of  bankruptcy. 

Doubtless  a  chief  reason  for  the  simpler  and  more  satisfactory  law 
of  preference  in  this  country  is  that  the  question  was  dealt  with  fully 
by  statute  before  it  had  been  partially  treated  by  the  courts.  Section 
2  of  the  act  of  1841  deflned  and  forbade  preferences,  and  the  act  of 
1867,  copying  the  insolvent  law  of  Massachusetts  and  adopting  a  con- 
struction of  the  meaning  of  the  words  copied  similar  to  that  laid  down 
by  the  Massachusetts  courts,  fixed  the  American  law  in  the  shape 
which  in  most  respects  it  now  has  under  the  law  of  1898. 


SECTION  II.   (continued), 
(a)  INSOLVENCY. 

CHICAGO    TITLE   &  TRUST  CO.  v.  JOHN   A.  ROEBLING'S 

SONS   CO. 

DISTRICT  COURT  FOR  THE  NORTHERN  DISTRICT  OP  ILLINOIS, 
FEBRUARY  8,  1901. 

[Reported  in  107  Federal  Reporter,  71.] 

KOHLSAAT,  District  Judge.  The  questions  of  fact  herein,  as  found 
by  the  master,  will  be  taken  as  the  ultimate  facts  in  the  case,  no  good 
grounds  to  the  contrary  being  shown.  Upon  these  facts  there  is  but 
one  proposition  of  law  to  be  passed  upon  by  the  court,  which  will  be 
stated  in  general  terms  as  follows  :  Where  the  property  of  the  bank- 
rupt before  insolvency  consists  chiefly  of  a  manufacturing  plant  and 
raw  materials  for  use  in  said  plant,  the  fair  valuation  of  which  depends 
in  large  part  upon  the  fact  that  said  plant  is  a  going  concern,  and  such 
fair  valuation  as  a  going  concern  brings  the  entire  fair  value  of  the 
assets  of  said  bankrupt  to  a  total  in  excess  of  the  bankrupt's  liabilities, 
would  the  fact  that  a  judgment  creditor  caused  a  levy  under  his  judg- 
ment to  be  made  upon  such  plant,  and  its  sale  under  such  levy,  thus 
destroying  the  value  of  said  plant  as  a  going  concern,  and  bringing  the 
total  value  of  the  assets  of  said  bankrupt,  including  the  sura  realized 
from  the  sale  of  the  plant  under  said  levy,  to  a  figure  below  the  bank- 
rupt's liabilities,  create  a  preference  in  favor  of  said  judgment  creditor, 
which  could  be  recovered  b}-  the  bankrupt's  trustee,  when  such  judg- 
ment creditor  has  reasonable  cause  to  believe  that  such  levy  and  sale 
would  cause  the  insolvency  of  the  bankrupt  as  aforesaid?  While  I 
regret  to  be  forced  to  the  conclusion,  yet  I  am  of  the  opinion  that, 
under  the  wording  of  the  present  bankruptcy  act,  and  especially  the 
proper  interpretation  of  the  words  "  being  insolvent,"  such  action  on 


248  MUNDO   V.    SHEPARD.  [CHAP.  IV. 

the  part  of  a  judgment  creditor  would  not  create  a  preference  recover- 
able 03-  the  trustee  under  the  terms  of  the  act.  The  exceptions  to  the 
master's  report  will  therefore  be  overruled,  the  report  confirmed,  and 
the  petition  of  the  trustee  be  dismissed  for  want  of  equity.1 


• 

SECTION  II.    (continued), 
(b)   INTENT  TO  PREFER. 

MUNDO  v.  SHEPARD. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  DECEMBER  10,  1895- 

JUNE  10,   1896. 

[Reported  in  166  Massachusetts,  323.] 

BILL  in  equity,  filed  July  2,  1894,  by  the  assignee  in  insolvency  of 
Adelaide  C.  Clark,  to  set  aside  an  assignment  of  certain  accounts  made 
by  the  insolvent  as  security  for  a  debt  due  to  the  defendants. 

The  case  was  heard  in  the  Superior  Court,  before  DEWEY,  J.,  who 
dismissed  the  bill,  and,  at  the  request  of  the  plaintiff,  reported  the  case 
for  the  determination  of  this  court,  in  substance  as  follows  :  — 

The  insolvent,  Adelaide  C.  Clark,  was,  in  1893,  a  dressmaker  and 
milliner  doing  business  in  Boston,  and  being  at  that  time  indebted  for 
goods  sold  to  her  by  the  defendants,  Shepard,  Norwell,  and  Company, 
in  the  sum  of  about  $1,700,  she,  on  May  6,  1893,  assigned  to  them  as 
security  for  her  indebtedness  certain  accounts  due  and  owing  to  her, 
amounting  in  all  to  about  $2,100,  it  being  understood  that  the  surplus 
of  such  accounts  when  collected  was  to  be  returned  to  Mrs.  Clark  if 
additional  credit  to  that  amount  had  not  been  furnished  to  her.  There- 
after, on  October  12,  1893,  Mrs.  Clark  filed  a  voluntary  petition  in 
insolvency,  and  the  plaintiff  was  appointed  assignee. 

Mrs.  Clark  testified  that  she  carried  on  a  large  business  as  dress- 
maker and  milliner  in  Boston  ;  that  at  the  time  of  the  assignment  to 
the  defendants  her  assets  were  from  $9,000  to  $11,000,  and  her  liabili- 
ties were  about  $16,500  ;  that  of  the  latter  amount  $6,500  were  debts 
due  mostl}*  for  merchandise ;  that  her  creditors  included  man}7  of  the 
large  dry  goods  houses  in  Boston  ;  that  she  kept  no  regular  books  of 
account,  and  she  estimated  her  assets  and  liabilities  from  investigations 
made  at  the  time  of  the  hearing ;  that  most  of  these  liabilities  were 

i  J.  W.  Butler  Co.  v.  Goembel,  143  Fed.  295  (C.  C.  A.),  ace. 

Under  the  English  acts,  the  United  States  act  of  1867,  and  the  Massachusetts  Insol- 
vent Law,  it  was  uniformly  held  that  insolvency,  on  the  part  of  a  trader  at  least,  meant 
an  inability  to  pay  his  debts  as  they  matured,  irrespective  of  the  value  of  the  debtor's 
property.  The  cases  are  collected  in  Lowell,  Bankruptcy,  §  41. 


SECT.  II.]  MUNDO   V.    SHEPARD.  249 

overdue,  and  she  was  unable  to  pay  them ;  that  for  several  years  prior 
to  her  assignment  she  had  had  an  open  account  with  the  defendants, 
which,  until  the  winter  of  1893,  had  not  exceeded  $500,  but  at  that  time, 
her  business  increasing,  she  increased  her  account  to  such  an  extent 
that  the  defendants  notified  her  that  unless  it  was  reduced  they  should 
refuse  her  further  credit ;  that  prior  to  said  assignment  one  Collirton, 
representing  the  defendants,  called  frequently  at  her  store  to  sell  goods 
and  collect  money,  and  she  told  him  that  she  could  not  make  any  large 
payment  upon  her  account ;  that  she  did  not  have  the  money  to  pa}r  it 
in  full  because  collections  were  slow,  but  she  occasionally  made  small 
payments  ;  that  one  Webster,  who  had  charge  of  the  credits  and  finan- 
cial matters  of  the  defendants'  business,  told  her  that  her  account  must 
be  reduced  or  further  credit  would  be  refused,  and  inquired  as  to  the 
prospects  of  her  making  collections,  to  which  she  replied  that  the  bills 
were  all  good,  and  she  expected  to  collect  them,  when  she  would  apply 
them  on  her  account,  but  that  she  did  not  wish  her  credit  stopped  as 
her  business  was  good  ;  that  thereupon  Webster  suggested,  as  a  con- 
dition for  the  continuation  of  her  credit,  the  assignment  of  certain  ac- 
counts which  were  good  ;  and  that  after  the  assignment  credit  was 
from  time  to  time  given  her,  but  was  finally  refused,  and  at  the  time 
of  filing  the  petition  in  insolvency  her  indebtedness  to  the  defendants 
had  increased.  Mrs.  Clark  further  testified  that  she  did  not  know 
whether  or  not  she  told  Webster  or  Collirton  that  she  had  other  cred- 
itors besides  the  defendants,  or  that  other  creditors  were  pushing  her, 
though  in  fact  one  creditor  had  brought  suit  against  her ;  that  she  did 
not  inform  them  of  a  mortgage  upon  her  stock  in  trade  ;  that  she  did 
not  at  the  time  of  the  assignment  to  the  defendants  intend  or  expect  to 
go  into  insolvency ;  that  her  business  was  good  ;  that  she  did  not  wish 
the  defendants  to  refuse  her  credit,  as  she  hoped  that  with  it  she  could 
go  on  ;  that  she  did  not  believe  herself  to  be  insolvent  or  fully  realize 
her  condition  ;  and  that  she  did  not  figure  her  liabilities  closely,  but 
had  a  general  idea  of  what  she  owed,  and  that  she  should  be  able  to 
pay  all  her  creditors  in  full. 

On  cross-examination,  in  answer  to  the  question  whether  she  meant 
to  prefer  the  defendants,  she  testified  that  she  did  not  look  at  it  in  that 
way,  but  was  anxious  to  get  more  credit,  and  that  she  had  never  previ- 
ously assigned  her  accounts. 

There  was  evidence  for  the  defendants  that  in  1891  Mrs.  Clark's 
credit  was  good,  but  in  the  spring  of  1893  she  became  slow  in  her  pay- 
ments, and  in  conversations  with  the  defendants  or  their  representa- 
tives both  she  and  her  husband  said  that  she  was  doing  a  good  business, 
had  some  of  the  best  trade  in  the  city,  and  was  amply  able  to  pay  all 
her  bills,  but  that  collections  were  slow,  and  she  did  not  have  much 
ready  money ;  and  that  accounts  due  her  were  good,  and  that  it  would 
be  all  right.  They  did  not  tell  the  defendants  that  Mrs.  Clark  h:ul 
other  accounts,  or  mention  the  mortgage  on  her  stock  in  trade.  The 
defendants  at  one  time  refused  her  further  credit,  and  subsequently 


250  MUNDO   V.   SHEPARD.  [CHAP.  IV. 

/ 

ordered  it  to  be  continued,  and  sales  were  from  time  to  time  made  to 
her  until  her  insolvency.     This  was  all  the  material  evidence. 

The  judge  found  that  Mrs.  Clark  made  the  assignment  within  six 
months  prior  to  filing  her  petition  in  insolvenc}' ;  that  at  the  time  of 
the  assignment  to  the  defendants  she  was  not  able  to  pay  her  debts  as 
the}'  accrued  in  the  ordinar}'  course  of  business,  and  was  insolvent, 
and  that  her  total  liabilities  greatlj*  exceeded  her  total  assets  ;  that  the 
defendants  had  reasonable  cause  to  believe  Mrs.  Clark  to  be  insolvent 
only  in  the  sense  of  not  being  able  to  pay  her  debts  as  they  accrued  in 
the  ordinary  course  of  business ;  that  the  assignment  was  not  made  in 
the  usual  and  ordinary  course  of  business,  but  that  Mrs.  Clark  did  not 
then  contemplate  going  into  insolvency,  but  thought  that  she  would  be 
able  to  keep  on  in  business  and  pay  all  her  debts ;  that  the  assignment 
was  not  made  by  her  in  fraud  of  the  laws  relating  to  insolvency,  or 
with  a  view  to  prevent  the  property  from  coming  to  her  assignee  in 
insolvency,  or  to  prevent  the  same  from  being  distributed  under  the 
laws  relating  to  insolvency,  or  to  defeat  the  object  of,  or  in  any  way 
impair,  hinder,  impede,  or  delay  the  operation  or  effect  of,  or  to  evade 
any  of  the  provisions  of  the  insolvency  law ;  and  that  the  defendants, 
when  the  assignment  was  made,  did  not  have  reasonable  cause  to  be- 
lieve Mrs.  Clark  was  insolvent  in  the  sense  of  not  having  sufficient 
property  and  assets  to  pay  her  debts,  or  that  she  was  in  contemplation 
of  insolvency,  and  that  the  assignment  was  made  in  fraud  of  the  laws 
relating  to  insolvency,  or  with  a  view  to  prevent  the  property  from 
coming  to  her  assignee  in  insolvency,  or  to  prevent  the  same  from  being 
distributed  under  the  laws  relating  to  insolvency,  or  to  defeat  the  ob- 
ject of,  or  in  anj-  waj-  impair,  hinder,  impede,  or  delay  the  operation  or 
effect  of  the  provisions  of  the  insolvency  law. 

The  case  was  argued  at  the  bar  in  December,  1895,  and  afterwards 
was  submitted  on  the  briefis  to  all  the  judges. 

C.  -R.  Darling,  for  the  plaintiff. 

J.  J.  Higgins,  for  the  defendants. 

HOLMES,  J.  This  is  a  bill  in  equity,  brought  by  the  assignee  in 
insolvency  of  Mrs.  Clark  to  set  aside  an  assignment  of  certain  credits 
made  by  the  insolvent  as  security  for  a  debt  due  to  the  defendants, 
and  in  order  to  obtain  further  credit  from  them.  The  case  comes  here 
on  report.  In  form,  the  only  question  reserved  is  the  correctness  of  a 
ruling  that  the  bill  cannot  be  maintained  on  the  facts  found  by  the 
judge  who  tried  the  case.  But  as  one  of  the  findings  is  that  the  as- 
signment was  not  made  in  fraud  of  the  insolvent  laws,  and  as  the  evi- 
dence is  reported,  we  assume  with  some  hesitation,  as  the  counsel  have 
assumed  in  their  arguments,  that  it  was  intended  to  open  the  correct- 
ness of  this  finding,  as  matter  of  law,  in  view  of  the  facts  subject  to 
which  it  was  made. 

It  is  found  that  Mrs.  Clark  was  insolvent  at  the  time  of  the  assign- 
ment, and  that  the  assignment  was  not  made  in  the  ordinary  course  of 
business  of  Mrs.  Clark.  There  was  evidence  tending  to  show  that 


SECT.  II.]  MUNDO   V.   SHEPARD.  251 

Mrs.  Clark  had  reasonable  cause  to  believe  that  she  was  insolvent,  and 
there  is  no  question  that  the  evidence  warranted  a  finding' for  the  plain- 
tiff. On  the  other  hand,  it  is  not  found  that  Mrs.  Clark  knew  or  had 
reasonable  cause  to  believe  that  she  was  insolvent,  and  in  view  of  the 
general  finding  under  discussion,  we  can  assume  no  more  than  the  facts 
found  or  admitted  require.  It  is  found  that  she  was  not  able  to  pay 
her  debts  as  they  fell  due  in  the  ordinary  course  of  business,  and  this 
almost  necessitates  the  assumption  that  she  knew  that  she  could  not, 
and  therefore  knew  that  technically  she  was  insolvent.  But  Mrs.  Clark 
was  a  fashionable  milliner,  and  there  was  evidence  that  at  the  time  she 
believed,  and  the  defendants  believed,  that  her  assets  were  more  than 
sufficient  to  pay  her  debts,  and  that  the  want  of  read}'  money  arose 
solely  from  the  unwillingness  to  imperil  her  custom  by  pressing  for 
prompt  payment  of  her  bills. 

We  suppose  that  it  is  with  reference  to  such  a  case  as  that  that  all 
the  later  decisions  have  emphasized  the  necessity  of  finding  an  intent 
to  create  a  preference,  or  to  effect  some  other  fraud  on  the  insolvent 
law  as  a  fact,  before  a  conveyance  can  be  set  aside.  Bridges  v.  Miles, 
152  Mass.  249 ;  Sartwell  v.  North,  144  Mass.  188,  192 ;  Rice  v. 
Grafton  Mills,  117  Mass.  228,  232.  It  would  be  very  hard  to  declare 
a  convej'ance  void  if  at  the  time  the  grantor  had  property  unquestion- 
ably sufficient  to  pa}-  his  debts,  but  owing  to  a  cause  like  that  men- 
tioned, or  to  its  being  invested  in  land,  he  had  not  ready  money  enough 
to  pay  on  demand,  and  therefore  appropriated  assets  to  pay  or  to  se- 
cure one  which  was  pressing,  knowing  that  thereby  the  continuance  of 
his  business  would  be  facilitated,  and  not  doubting  that  his  course  was 
at  least  harmless  to  his  other  creditors.  The  evidence  warranted  a 
finding  that  Mrs.  Clark  supposed  that  to  be  her  situation,  and  that  her 
only  motive  was  to  get  more  credit.  If  she  did  suppose  so,  and  in  fact 
had  no  other  motive,  the  tendency  of  her  conduct  to  create  a  preference 
was  not  manifest  to  her  because  the  tendency  would  not  have  existed 
if  the  facts  believed  by  her  were  true,  and  therefore  it  would  be  a  mere 
fiction  to  say  that  she  acted  "  with  a  view  to  give  a  preference."  It 
cannot  be  said  that,  as  matter  of  law,  every  conveyance  to  secure  a 
past  debt  is  voidable  when  the  grantor  is  insolvent  and  knows  that  he 
cannot  pay  his  debts  in  the  regular  course  of  business  as  they  fall  due, 
even  if  his  creditor  has  reason  to  believe  that  a  fraud  on  the  insolvent 
law  is  intended,  and  therefore  it  cannot  be  said,  as  matter  of  law,  that 
the  decree  was  wrong.  Decree  affirmed.1 

KNOWLTON,  J.  It  seems  to  me  so  manifest  that  the  decision  of  the 
judge  of  the  Superior  Court  was  founded  on  an  error  of  law,  that,  not* 
withstanding  a  doubt  in  regard  to  the  meaning  of  the  reservation,  I 
think  that  the  decree  should  be  set  aside  and  the  law  applicable  to 
cases  of  this  kind  more  fully  stated. 

i  Quinebaug  Bank  v.  Brewster,  30  Conn.  589 ;  Bloodgood  v.  Beecher,  39  Cona 
469.  ace. 


252  MUNDO   V.   SHEPARD.  [CHAP.  IV. 

To  avoid  a  conveyance  under  Pub.  Sts.  c.  157,  §  96,  it  must  bo 
proved  that  at  the  time  of  making  it  the  debtor  was  insolvent,  or  in 
contemplation  of  insolvency,  that  it  was  made  within  six  months  be- 
fore the  filing  of  the  petition  by  or  against  him,  that  it  was  made  with 
a  view  to  give  a  preference,  that  the  person  receiving  it  had  reasonable 
cause  to  believe  that  the  debtor  was  insolvent  or  in  contemplation  of 
insolvency,  and  that  the  conveyance  was  made  in  fraud  of  the  laws 
relating  to  insolvency.  If  the  transaction  was  not  in  the  usual  and 
ordinary  course  of  business  of  the  debtor,  a  prima  facie  case  of  rea- 
sonable cause  to  believe  on  the  part  of  the  person  receiving  the  con- 
veyance is  made  out.  Pub.  Sts.  c.  157,  §  98 ;  Stevens  v.  Pierce,  147 
Mass.  510. 

The  judge  found  that  the  debtor  was  insolvent  at  the  time  of  making 
the  conveyance  in  question,  that  the  conveyance  was  made  within  six 
months  prior  to  the  commencement  of  the  proceedings  in  insolvency, 
that  it  was  not  made  in  the  usual  and  ordinary  course  of  business  of 
the  debtor,  that  the  defendants  then  had  reasonable  cause  to  believe 
that  she  was  insolvent,  but  only  in  the  sense  of  not  being  able  to  pay 
her  debts  as  they  accrued  in  the  ordinary  course  of  business,  that  she 
did  not  then  contemplate  going  into  insolvenc}',  and  that  the  defend- 
ants did  not  have  reasonable  cause  to  believe  that  the  conveyance  was 
made  in  fraud  of  the  laws  relating  to  insolvency.  The  defendants  were 
creditors,  and  the  case  is  governed  by  the  provisions  of  section  96  above 
referred  to.  If  the  debtor  was  insolvent,  it  is  not  necessarj-  to  show 
that  she  was  in  contemplation  of  insolvency,  and  no  fraud  need  be 
proved  other  than  making  a  conveyance  when  insolvent  with  a  view  to 
give  a  preference  to  a  creditor.  The  judge  in  his  findings  seems  to 
make  a  distinction  in  legal  effect  between  insolvency  in  the  sense  of 
not  being  able  to  pay  one's  debts  as  they  fall  due  in  the  ordinary  course 
of  business,  and  insolvency  in  the  sense  of  not  having  sufficient  prop- 
erty ultimately  to  pay  one's  debts  if  the}-  are  not  enforced  at  maturit}', 
and  if  time  is  given  to  enable  the  owner  to  dispose  of  the  property 
advantageously.  I  know  of  no  distinction  recognized  by  our  laws  be- 
tween the  insolvency  of  a  trader  by  reason  of  his  being  unable  to  pay 
his  debts  in  the  ordinary  course  of  business  as  they  mature  and  his 
inability  ultimately  to  pay  them.  If  a  trader  is  in  the  condition  of  not 
being  able  to  pa}'  his  debts  in  the  ordinary  course  as  the}'  mature,  he 
is  insolvent,  and  is  subject  to  all  the  consequences  which  the  statute 
attaches  to  insolvenc}*.  The  law  deals  with  present  conditions  in  ref- 
erence to  existing  debts,  and  does  not  attempt  the  impossibility  of  cor- 
rectly foretelling  the  future  beyond  the  events  immediately  practicable 
in  the  ordinary  course  of  business.  The  law  intends  that  a  trader  in 
that  condition  shall  do  nothing  to  interfere  with  a,  pro  rata  distribution 
of  his  property  among  his  creditors,  if  insolvency  proceedings  ensue 
within  a  stated  time.  Until  the  amendment  by  St.  1886,  c.  322,  if  one 
in  that  condition,  and  having  reasonable  cause  to  believe  himself  so, 
paid  or  secured  any  debt  in  whole  or  in  part  within  one  year  next  be- 


SECT.  II.]  MUNDO   V.   SHEPARD.  253 

fore  the  filing  of  the  petition  by  or  against  him,  it  was,  by  the  express 
terms  of  Pub.  Sts.  c.  157,  §  93,  a  fraud  upon  the  law  which  prevented 
his  obtaining  a  discharge.  See  Cozzens  v.  Holt,  136  Mass.  287.  It 
did  not  take  the  case  out  of  this  provision  of  the  statute  if  the  debtor 
at  the  time  believed  his  property  exceeded  in  value  the  amount  of  his 
debts,  and  expected  ultimately  to  pay  all  his  creditors  without  proceed- 
ings in  insolvency.  If  he  made  such  a  payment,  he  did  it  at  the  risk 
of  its  defeating  his  application  for  a  discharge  if  insolvenc}-  proceedings 
were  commenced  within  a  year.  So  in  regard  to  the  right  to  recover 
back  property  conveyed,  which  has  not  been  affected  by  this  amend- 
ment, if  insolvency  proceedings  ensue  within  six  mouths  the  rights  of 
the  general  creditors  are  preserved  if  the  debtor  was,  at  the  time  of  the 
conveyance,  insolvent,  and  if  he  acted  with  a  view  to  give  a  preference 
to  one  who  had  reasonable  cause  to  believe  him  to  be  insolvent  and  to 
intend  a  preference.  If  these  conditions  existed  at  the  time  of  the 
conveyance  it  is  immaterial  that  neither  party  contemplated  insolvenc}' 
proceedings,  and  that  each  hoped  and  expected  that  the  debtor  would 
get  an  extension  and  finallj-  pay  in  full.  These  strict  provisions  are 
deemed  necessary  for  the  protection  of  creditors  when  one  is  unable  to 
pay  in  the  ordinary  course  of  business. 

In  Forbes  v.  Howe,  102  Mass.  427,  435,  is  this  language:  "The 
case  of  Jones  v.  Rowland,  8  Met.  377,  relied  on  by  the  defendants, 
turned  upon  the  question  whether  the  sales  which  it  was  sought  to 
avoid  were  made  '  in  contemplation  of  bankruptcy,'  in  the  sense  of  the 
United  States  bankrupt  act  of  1841.  The  terms  of  that  statute  were 
held  to  require  that  the  intent  which  would  make  void  a  sale  must  be 
an  intent  to  give  a  preference  in  contemplation  of  bankruptc}-.  But 
the  present  bankrupt  act  avoids  a  sale  made  with  a  view  to  give  a 
preference,  if  the  debtor  at  the  time  be  in  fact  insolvent,  although  he 
ma}r  not  contemplate  bankruptcy.  Under  this  statute,  we  think  the 
phrase  '  with  a  view  to  give  a  preference '  must  be  construed  somewhat 
less  strictly,  so  as  to  include  an  intent  to  give  one  creditor  any  advan- 
tage over  others  in  respect  of  payment  or  security  of  his  debt."  This 
language  is  equally  applicable  to  our  statute,  whose  words  in  this  part 
are  the  same  as  those  of  the  United  States  bankruptcy  act  of  1867. 
U.  S.  St.  March  2,  1867,  §  35.  In  In  re  George,  1  Low.  409,  411, 
Lowell,  J.,  says:  "A  debtor  gives  a  preference  when,  knowing,  be- 
lieving, or  suspecting  that  he  cannot  pay  all  his  creditors  in  full,  he 
chooses  to  pay  or  secure  one,  and  thus  give  him  an  intended  advantage 
over  the  rest.  ...  If  you  find  the  knowledge  of  insolvency,  and  an 
expectation  or  fear  of  stopping  payment,  you  must  infer  the  intent, 
because  every  sane  person  is  presumed  to  intend  the  well-known  con- 
sequences of  his  acts."  See  also  Toof  v.  Martin,  13  Wall.  40;  Wager 
v.  Hull,  16  Wall.  584.  In  Fernald  v.  Gay,  12  Cush.  596,  597,  Chief 
Justice  Shaw  uses  these  words :  "  The  plain  object  and  policy  of  the 
insolvent  law  is,  to  require  a  debtor,  as  soon  as  he  has  reason  to  be- 
lieve himself  insolvent,  and  before  he  has  frittered  away  his  property, 


254  MUNDO   V.   SHEPARD.  [CHAP.  IV. 

by  schemes  which  appear  plausible,  to  put  himself  and  his  assets  at 
once  into  the  hands  of  the  law,  with  a  view  to  two  objects :  one  is  to 
make  an  equal  distribution  amongst  all  his  creditors  ;  the  other,  to  pay 
every  creditor  as  large  a  part  of  his  whole  debt  as  the  means  of  the 
debtor  will  allow,"  etc.  In  Holbrook  v.  Jackson,  7  Gush.  136,  150,  the 
same  judge  says  :  "  We  think  the  position  insisted  on  by  the  plaintiff, 
that  although  actually  insolvent,  and  although  they  had  no  reasonable 
ground  to  believe  themselves  solvent,  against  the  fact,  yet  a  sincere 
belief  that  they  could  go  on,  however  groundless,  and  an  intention  to 
do  so,  would  save  the  conveyance  from  being  held  invalid,  cannot  be 
maintained  as  law,  under  the  existing  statute."  In  this  particular  there 
has  been  no  change  in  the  law  of  this  Commonwealth  since  these  de- 
cisions were  made.  See  also  Denny  v.  Dana,  2  Gush.  160,  171 ;  Barn- 
ard v.  Crosby,  6  Allen,  327,  332;  Abbott  v.  Shepard,  142  Mass.  17; 
Whipple  v.  Bond,  164  Mass.  182,  the  latest  case  in  which  the  subject  of 
fraudulent  preferences  has  been  considered  by  this  court,  reaffirms  the 
doctrines  laid  down  b}'  Chief  Justice  Shaw. 

A  trader  unable  to  pa}'  his  debts  in  the  ordinary  course  of  business 
may  speculate  upon  the  chances  of  being  able  to  induce  his  creditors  to 
wait,  and  of  finally  getting  the  means  to  pay  them  all  in  full ;  but  in 
my  opinion  he  and  an)'  creditor  dealing  with  him  with  knowledge  of  his 
condition  speculates  at  the  risk  of  having  a  payment  or  convej'anee  set 
aside,  and  an  equal  distribution  made  if  insolvency  proceedings  are 
commenced  within  six  months.  It  seems  to  me  that  the  enforcement 
of  this  rule  is  the  only  practicable  way  of  securing  justice  to  creditors 
who  are  outstripped  in  the  race  for  pa3'ment  or  securit}*.  When  a 
trader  is  unable  to  pay  his  debts  in  the  ordinary  course  of  business, 
there  is  risk,  not  only  that  creditors  will  not  receive  the  money  due 
them  when  the}'  are  entitled  to  have  it,  but  that  they  will  finally  lose 
some  part  of  it.  To  pay  or  secure  a  creditor  under  such  circumstances 
is  to  give  him  a  preference  over  others  who  have  no  security.  In  my 
opinion,  all  the  preference  that  a  trader,  knowing  himself  to  be  insol- 
vent, need  intend  in  order  to  bring  the  case  within  the  statute  is  secur- 
ity against  the  risk  of  delay  and  loss  which  necessarily  results  from  his 
condition,  and  it  is  none  the  less  a  preference  if,  when  such  security  is 
given,  the  debtor  hopes  and  expects  that  the  other  creditors  will  ulti- 
mateh'  be  paid  in  full.  It  is  not  necessaril}'  security  against  an  ex- 
pected loss,  but  against  the  risk  of  loss  when  the  debtor  is  in  fact 
insolvent,  that  constitutes  the  preference. 

In  the  present  case,  the  judge  finds  that  the  debtor,  who  bought  and 
sold  goods  in  the  prosecution  of  her  business  as  a  dressmaker,  was 
insolvent  at  the  time  of  making  the  assignment.  He  finds  that  the 
defendants  had  reasonable  cause  to  believe  that  she  was  insolvent.  He 
finds  facts  which,  under  the  statute,  make  a  prima  facie  case  against 
the  defendants  in  support  of  the  proposition  that  the}"  had  reasonable 
cause  to  believe  that  the  conveyance  was  fraudulent.  It  seems  to  me 
that  there  is  no  evidence  to  overcome  this  prima  facie  case,  and  that 


SECT.  IT.]  TOOF    V.   MARTIN.  255 

the  finding  that  they  had  no  reasonable  cause  to  believe  the  conveyance 
to  be  fraudulent  is  erroneous  in  law.  I  think  the  evidence  shows  over- 
whelmingly that  the  debtor  knew  that  she  could  not  pay  her  debts  in 
the  ordinary  course  of  business,  and  that  one  of  her  purposes  in  mak- 
ing the  conveyance  was  to  secure  the  defendants  against  the  risk  of 
loss  growing  out  of  her  condition.  I  can  see  no  evidence  which  tends 
to  show  the  contrary.  If  these  facts  are  conceded,  I  think  the  right  of 
the  other  creditors  to  have  this  property  distributed  is  not  affected  by 
anj'  possible  answer  to  the  question  whether  she  hoped  or  expected  to 
be  able  to  go  on  with  her  business  and  finally  to  pay  her  creditors. 
Bridges  v.  Miles,  152  Mass.  249,  and  other  similar  cases,  merely  hold 
that  whether  there  was  an  intent  to  prefer  is  a  question  of  fact.  Treat- 
ing this  as  a  question  of  fact,  I  think  the  findings  and  the  undisputed 
evidence  in  the  present  case  are  inconsistent  in  law  with  the  decision  of 
the  judge  of  the  Superior  Court. 

I  am  authorized  to  say  that  the  Chief  Justice   and  Mr.  Justice 
LATHROP  concur  in  this  opinion.1 


1  In  Toof  v.  Martin,  13  Wall.  40,  the  court  said :  "  It  is  a  general  principle  that 
every  one  must  be  presumed  to  intend  the  necessary  consequences  of  his  acts.  The 
transfer,  in  any  case,  by  a  debtor,  of  a  large  portion  of  his  property,  while  he  is  insol- 
vent, to  one  creditor,  without  making  provision  for  au  equal  distribution  of  its  proceeds 
to  all  his  creditors,  necessarily  operates  as  a  preference  to  him,  and  must  be  taken  as 
conclusive  evidence  that  a  preference  was  intended,  unless  the  debtor  can  show  that 
he  was  at  the  time  ignorant  of  his  insolvency,  and  that  his  affairs  were  such  that  he 
could  reasonably  expect  to  pay  all  his  debts.  The  burden  of  proof  is  upon  him  in  sach 
case,  and  not  upon  the  assignee  or  contestant  in  bankruptcy." 

In  Re  Condon,  209  Fed.  800,  802  (C.  C.  A.),  the  court  said :  " Of  course,  if  Condon 
supposed  at  the  time  that  he  was  insolvent,  he  will  be  presumed  to  intend  the  conse- 
quences which  will  result  from  selecting  a  particular  creditor  and  paying  him  under 
such  conditions.  Quite  probably  he  still  hoped  that,  in  some  way  or  other,  lie  would 
be  relieved  from  his  difficulties.  But  if  every  person,  who  may  be  hopelessly  insolvent 
and  yet  is  of  an  optimistic  temperament,  may  pay  selected  creditors,  persuading  him- 
self that  some  time  or  other  he  will  be  able  to  pay  his  other  creditors,  the  provisions 
of  the  Bankruptcy  Act  as  to  '  preferential  payments '  cannot  he  of  much  practical 
value." 

See  also  Re  Rome  Planing  Mill,  96  Fed.  Rep.  812;  Re  McGee,  105  Fed.  Rep.  895; 
lie  Wright  Lumber  Co.,  114  Fed.  1011  ;  Rex  Buggy  Co.  v.  Hearick,  132  Fed.  310;  Re 
Smith,  176  Fed.  426;  Pepperdine  v.  Nat.  Exchange  Bank,  84  Mo.  App.  234,  ace. 

Conf.  Debus  v.  Yates.  193  Fed.  427;  Studley  v.  Boylston  Bank,  229  U.  8.  523,  526- 

It  is  immaterial  whether  the  debtor  was  induced  to  make  the  payment  by  threats 
or  pressure  of  the  creditor.  Clarion  Bank  i>.  Jones,  21  Wall.  325 ;  Arnold  v.  Maynard, 
2  Story,  349;  He  Batchelder,  1  Low.  373;  Giddings  v.  Dodd,  1  Dill.  115;  Hill  r. 
McGregor,  23  Blatch.  312;  Strain  v.  Gourdiu,  11  B.  R.  156.  But  in  He  Frantzcn,  20 
Fed.  Rep.  785,  and  McMechen's  Lessee  v.  Grundy,  3  H.  &  J.  185,  the  motives  of  the 
bankrupt  were  treated  as  material. 


256  KOGERS  V.   AMERICAN   HALIBUT  COMPANY.          [CHAP.  IV. 


SECTION  II.    (continued). 
(66)  REASONABLE  CAUSE  TO  BELIEVE  THAT  A  PREFERENCE  WILL  BE  EFFECTED. 

ROGEKS  v.   AMERICAN  HALIBUT  COMPANY. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  NOVEMBER  5- 
DECEMBER  13,  1913. 

[Reported  in  216  Massachusetts,  227.] 

BRALET,  J.  : 

The  intention  of  the  bankrupt  to  confer  a  preference  no  longer  need 
be  shown,  but  the  plaintiff  under  the  statute  as  amended  still  had  the 
burden  of  proving  that  the  defendant  when  the  payment  was  received 
had  reasonable  cause  to  believe  its  debtor  was  insolvent  and  that  en- 
forcement of  the  transfer  would  result  in  diminishing  the  bankrupt's 
assets  applicable  for  the  payment  of  creditors  of  the  same  class. 
Bankruptcy  Act,  §  60b,  as  amended  by  Act  June  25,  1910 ;  Hewitt  v. 
Boston  Straw  Board  Co.,  214  Mass.  260;  Wilson  v.  Mitchell- Woodbury 
Co.,  214  Mass.  514;  National  Bank  v.  Herkimer  County  Bank,  225 
U.  S.  1 78. 

It  is  unnecessary  to  show  actual  knowledge  or  belief  by  the  creditor. 
If  the  circumstances  are  such  as  would  lead  the  ordinarily  prudent 
man  of  affairs  to  the  conclusion  that  his  debtor  is  insolvent,  he  obtains 
a  preferential  payment  within  the  meaning  of  the  statute,  by  accept- 
ing payment  in  whole  or  in  part  of  the  debt,  where  the  transaction 
takes  place  within  four  months  prior  to  adjudication ;  and  other  credi- 
tors of  the  same  class,  because  of  the  greater  percentage  received, 
must  accept  decreased  dividends.  Hewitt  v.  Boston  Straw  Board 
Co.,  214  Mass.  260,  and  cases  cited;  Wilson  v.  Mitchel- Woodbury 
Co.,  214  Mass.  514. 

By  section  60b,  knowledge  possessed  by  his  agent  binds  the  credi- 
tor, but  this  provision  is  to  be  taken  with  the  qualification  that,  where 
the  agent  is  acting  in  furtherance  of  his  own  adverse  interest  or  fraudu- 
lently, his  principal  is  not  bound.  Hewitt  v.  Boston  Straw  Board  Co., 
214  Mass.  260;  Quinn  v.  Burton,  195  Mass.  277. 

The  bankrupt  was  the  general  business  manager  of  the  defendant 
corporation,  and  within  the  prescribed  period  he  paid  to  the  bookkeeper 
in  partial  settlement  of  over-drafts  of  his  account  with  the  company, 
the  amount  in  controversy.  His  insolvency  when  he  made  the  payment 
is  conclusively  shown  by  his  own  evidence.  Bankruptcy  Act,  §  1  (15). 
The  jury  could  infer  that  the  money  went  into  the  company's  treasury, 
and  in  the  ordinary  course  of  bookkeeping  the  transaction  finally  ap- 
peared in  some  form  upon  its  books.  It  is  also  of  significance  that  the 
defendant  has  retained  the  money,  and  from  all  these  circumstances 
there  was  evidence  of  ratification.  Buttrick  Lumber  Co.  v.  Collins,  202 


SECT.  II.]  GREEY   V.   DOCKENDORFF.  257 

Mass.  413,  418.  A  further  finding  that  the  bankrupt  intended  the  pay- 
ment should  inure  to  the  defendant's  benefit  would  have  been  warranted, 
and  not  having  acted  for  his  own  individual  interest  at  the  expense  of 
his  principal  he  did  not  exceed  the  scope  of  his  employment.  Besides, 
his  knowledge  that  he  was  insolvent  is  to  be  imputed  to  the  defendant, 
and  if  believed  the  evidence  would  have  justified  the  jury  in  finding 
that  as  manager,  charged  with  the  supervision  of  its  business,  he  had 
reasonable  cause  to  believe  the  company's  debt  would  be  largely  satis- 
fied to  the  detriment  of  his  other  creditors.  Jaquith  u.  Davenport, 
191  Mass.  415,  417,  418.  It  would  follow  under  the  declaration,  which 
is  sufficient  in  form,  that  upon  these  findings  the  payment  was  a  voida- 
ble preference  at  the  election  of  the  plaintiff,  and  can  be  recovered 
back,  subject,  however,  to  the  right  of  the  defendant  under  its  declara- 
tion in  set-off  to  have  subsequent  credits  which  have  become  part  of 
the  debtor's  estate  deducted,  if  made  in  good  faith  and  without  secu- 
rity. Bankruptcy  Act,  §  60c;  Peterson  v.  Nash  Bros.  (C.  C.  A.,  8th 
Cir.);  Kaufman  v.  Tredway,  195  U.  S.  271.1 


GREEY  v.    DOCKENDORFF. 
SUPREME  COURT  OF  THE  UNITED  STATES,  DECEMBER  2-15,  1913. 

[Reported  in  231  United  States,  513.] 

MR.  JUSTICE  HOLMES  delivered  the  opinion  of  the  court. 

This  was  a  petition  by  the  appellee,  Dockendorff,  filed  in  the  bank- 
ruptcy proceedings  against  the  bankrupt,  the  Schwab-Kepner  Com- 
pany, to  have  paid  over  to  him  the  proceeds  of  accounts  receivable 
alleged  to  have  been  assigned  to  him  by  the  bankrupt.  The  defenses 
set  up  were  that  the  assignment  was  a  preference  and  that  it  was  made 
without  present  consideration  with  intent  to  defraud  creditors  of  the 
bankrupt  concern.  The  case  was  referred  to  a  special  master,  who 
found  that  it  did  not  appear  that  either  the  petitioner  or  the  bankrupt 
knew  that  the  latter  was  insolvent  at  the  time  of  the  supposed  prefer- 
ence or  that  there  were  any  transfers  with  intent  to  defraud  creditors, 
and  found  for  the  petitioner.  His  finding  of  facts  and  conclusion  were 
concurred  in  by  the  District  Court  and  Circuit  Court  of  Appeals.  208 
Fed.  Rep.  475;  121  C.  C.  A.  597. 

The  bankrupt,  a  New  Jersey  corporation,  did  business  in  New  York 
as  a  cotton  converter.  It  bought  raw  material  from  the  mills,  ordered 
it  sent  to  bleacheries  designated  by  it,  sold  the  goods  when  finished, 
and  had  them  shipped  from  the  bleacheries  to  the  buyers.  Docken- 
dorff, on  favorable  statements  of  the  Company's  condition,  made  suc- 

1  A  portion  of  the  opinion  is  omitted. 


258  GREEY   V.   DOCKENDORFF.  [CHAP.  IV. 

cessive  agreements  to  procure  loans  not  exceeding  $175,000  at  any  one 
time,  the  bankrupt  giving  demand  notes,  assigning  as  security  all  its 
accounts  receivable  thereafter  to  be  created,  and  paying  certain  com- 
missions. In  May,  1910,  the  agreement  now  in  question  was  made. 
By  this  the  bankrupt  was  to  assign  within  seven  days  after  shipment 
the  accounts  receivable  of  credit  sales  made  by  it ;  upon  that  security 
Dockendorff  was  himself  to  lerid  eighty  per  cent  of  the  net  face  value 
of  such  as  he  should  approve,  less  commissions  and  discounts,  up  to 
$175,000  ;  the  bankrupt  was  to  give  its  notes,  deliver  the  shipping  docu- 
ments, furnish  evidence  of  actual  receipt  of  the  merchandise  when  re- 
quired, notify  Dockendorff  of  any  return  of  goods  or  counterclaims, 
deliver  the  proceeds  of  such  accounts  as  were  proper  and  permit  him  to 
examine  its  books  and  correspondence,  etc. ;  Dockendorff' s  lien  was  to 
be  for  all  sums  due,  and  to  cover  all  accounts,  but  he  was  not  bound 
to  lend  on  accounts  not  approved  by  him.  Further  details  do  not  need 
to  be  stated  in  view  of  the  establishment  of  the  parties'  good  faith.  On 
November  29,  1910,  an  involuntary  petition  was  filed,  the  bankrupt 
then  owing  Dockendorff  $252,838.54  for  advances  under  the  agree- 
ment, and  he  having  received  assignments  of  accounts  from  the  bank- 
rupt as  it  received  orders,  that  is,  after  the  contract  of  sale  was  made, 
but  before  the  delivery  of  the  goods. 

The  trustee  relies  upon  the  general  application  of  the  lien  under  the 
agreement  as  constituting  a  fraud  in  law.  Whatever  effect  it  might 
have  as  evidence  must  be  laid  on  one  side  in  view  of  the  findings 
below.  The  question  here  is  whether  successive  assignments  of  ac- 
counts by  way  of  security,  in  pursuance  of  a  contract  under  which 
advances  were  made  to  enable  the  assignor  to  get  the  goods  on  the 
faith  of  the  undertaking  that  the  accounts  should  be  assigned,  were 
bad  because  the  contract  embraced  all  accounts,  although  neither 
party  contemplated  any  fraud.  The  rule  of  the  English  statutes  as 
to  reputed  ownership  may  extend  to  debts  growing  due  to  the  bank- 
rupt in  the  course  of  his  business,  but  we  have  no  such  statute.  The 
advances  were  the  means  by  which  the  bankrupt  got  the  ownership  of 
the  goods.  The  contract  of  itself  would  operate  as  a  conveyance  as 
soon  as  the  rights  to  which  it  applied  were  acquired.  Field  v.  New  York, 
6  N.  Y.  179.  We  do  not  see  why  in  the  interval  between  the  acquisi- 
tion of  the  goods  and  the  specific  assignment  of  accounts,  the  right  of 
general  creditors  without  lien  should  intervene  to  defeat  a  security 
given  in  good  faith,  when,  but  for  the  promise  of  it,  the  property  never 
would  have  come  into  the  bankrupt's  hands.  There  may  have  been  a 
moment  when  the  goods  could  have  been  attached,  or  when,  if  insol- 
vency had  been  made  known,  as  in  National  City  Bank  v.  Hotchkiss, 
ante,  p.  50,  it  would  have  been  too  late  to  make  the  promised  lien  good. 
But  in  this  case,  the  lien  was  acquired  before  any  knowledge  of  insol- 
vency, and  before  any  attachment  intervened.  See  Jaquith  v.  Alden, 
189  U.  S.  78  ;  Coder  v.  Arts,  213  U.  S.  223  ;  Van  Iderstine  v.  National 
Discount  Co.,  227  U.  S.  575,  583.  It  is  objected  that  this  lien  was  secret. 


SECT.  II.]   NEW  YORK  COUNTY  NATIONAL  BANK  V.  MASSEY.    259 

But  notice  to"  the  debtors  was  not  necessary  to  the  validity  of  the  as- 
signment as  against  creditors,  Williams  v.  Ingersoll,  89  N.  Y.  508,  522, 
and  merely  keeping  silence  to  the  latter  whether  known  'or  unknown, 
created  no  estoppel.  Wiser  v.  Lawler,  189  U.  S.  260,  270;  Ackerman 
v.  True,  175  N.  Y.  353,  363.  There  was  no  active  concealment  and 
no  attempt  to  mislead  anyone  interested  to  know  the  truth. 

We  content  ourselves  with  this  very  general  answer  to  an  argument 
that  dealt  with  many  details  that  we  have  not  mentioned,  because  those 
details  were  material  only  to  a  reconsideration  of  the  findings  of  fact. 
Probably  a  hope  of  securing  such  a  reconsideration  was  one  of  the  in- 
ducements toward  bringing  the  case  here. 

A  subordinate  question  was  raised  on  the  exclusion  of  some  of  the 
bankrupt's  books,  as  to  which  it  seems  to  us  enough  to  say  that  it  does 
not  appear  that  any  wrong  has  been  done. 

Decree  affirmed.1 


SECTION   II.    (continued), 
(c)  WHAT  is  A  "TRANSFER"  OF  THE  DEBTOR'S  PROPERTT. 

NEW  YORK  COUNTY  NATIONAL  BANK  v.  MASSEY. 

SUPREME  COURT  OF  THE  UNITED  STATES,  DECEMBER  11,  1903- 
JANUARY  4,   1904. 

[Reported  in  192  United  States,  138.] 

MR.  JUSTICE  DAY  delivered  the  opinion  of  the  court. 

For  a  number  of  years  past  the  bankrupts  were  engaged  in  the 
city  of  New  York,  under  the  firm  name  and  style  of  Stege  and  Brothers. 
On  January  27, 1900,  they  filed  a  voluntary  petition  of  bankruptcy,  and 
upon  the  same  day  were  adjudicated  bankrupts.  Among  their  liabili- 
ties there  was  an  indebtedness  to  the  New  York  County  National  Bank 
for  money  loaned  upon  four  promissory  notes  for  $10,000  each,  two 
due  January  26,  1900,  and  two  due  February  9,  1900. 

On  January  23,  1900,  in  the  morning,  the  bankrupts  went  to  the 
New  York  County  National  Bank  and  asked  the  officers  to  have  the 
two  notes  of  $10,000  each,  which  fell  due  on  January  26th,  extended. 
The  bankrupts  at  that  time  informed  the  bank  officers  that  they  were 
unable  to  pay  the  notes  then  about  to  fall  due.  In  the  afternoon  of  the 
same  day,  January  23,  1900,  the  bankrupts  again  called  upon  the  bank 
officers,  and  at  that  time  they  delivered  to  them  a  statement  of  their 
assets  and  liabilities,  which  statement  was  not  delivered  until  after  the 
deposit  of  $3,884.47  had  been  made  on  that  day.  This  statement,  as 
of  January  22,  1900,  showed  their  assets  to  be  $19,095.67  and  their 
liabilities  $65,864.61. 

1  A  portion  of  the  opinion  is  omitted. 


260         NEW  YORK   COUNTY   NATIONAL   BANK  V.   MASSEY.      [CHAP.  IV. 

The  bankrupts  kept  their  bank  account  in  the  New  York  County 
National  Bank  since  May  6,  1899.  On  January  22,  1900,  their  balance 
in  the  bank  was  $218.50.  On  the  same  day  they  deposited  in  that  ac- 
count $536.83  ;  on  January  23,  1900,  $3,384.47  ;  on  January  25,  1900, 
$1,803.95,  making  a  total  of  $6,225.25  deposited  in  three  days  men- 
tioned. Of  this  amount  there  was  left  in  the  bank  account  on  the  day 
of  adjudication  in  bankruptcy,  January  27,  1900,  the  sum  of  $6,209.25, 
the  bank  having  honored  a  check  of  Stege  Brothers  after  the  date  of 
all  these  deposits. 

At  the  first  meeting  of  creditors,  February  9,  1900,  the  New  York 
County  National  Bank  filed  its  claim  for  $33,790.25. 

In  its  proof  of  claim  the  bank  credited  upon  one  of  the  notes  which 
became  due  on  January  26,  1900,  the  deposit  of  $6,209.25.  The  claim 
was  allowed  by  the  referee  in  the  sum  of  $33,750.25,  being  $40,000,  less 
the  amount  on  deposit  in  bank  ($6,209.25),  and  a  small  rebate  of  in- 
terest on  the  unmatured  notes.  Some  of  the  creditors  at  this  meeting 
reserved  the  right  to  move  to  reconsider  the  claim  of  the  New  York 
County  National  Bank.  The  referee  granted  this  request.  Afterwards 
the  trustee,  as  the  representative  of  the  creditors,  moved  before  the 
referee  to  disallow  and  to  expunge  from  his  list  of  claims  the  claim  of 
the  New  York  County  National  Bank  unless  it  surrendered  the  amount 
of  the  deposit,  namely,  $6,209.25,  which  had  been  credited  by  the  bank 
upon  one  of  the  notes.  The  referee  denied  that  motion,  and  an  ap- 
propriate order  was  made  and  entered.  The  trustee  thereupon  duly 
filed  his  petition  to  have  the  question  certified  to  the  district  judge. 
The  district  judge,  on  the  25th  day  of  November,  1901.  made  an  order 
affirming  the  order  of  the  referee.  From  that  order  an  appeal  was  duly 
taken  by  the  trustee  to  the  Circuit  Court  of  Appeals,  which  found  the 
facts  as  above  stated  and  reversed  the  order  of  the  District  Court. 
From  the  judgment  of  reversal  this  appeal  is  brought.  The  deposits 
were  made  in  the  usual  course  of  business.  At  the  time  they  were 
made  Stege  Brothers  were  insolvent. 

This  case  requires  an  examination  of  sections  60,  68  and  57g  of  the 
Bankrupt  Law. 

Considering  for  the  moment  section  68,  apart  from  the  other  sec- 
tions, subdivision  (a)  contemplates  a  set-off  of  mutual  debts  or  credits 
between  the  estate  of  the  bankrupt  and  the  creditor,  with  an  account 
to  be  stated  and  the  balance  only  to  be  allowed  and  paid.  Subdivision 
(b)  makes  certain  specific  exceptions  to  this  allowance  of  set-off,  and 
provides  that  it  shall  not  be  allowed  in  favor  of  the  debtor  of  the 
bankrupt  upon  an  unproved  claim  or  one  transferred  to  the  debtor 
after  the  filing  of  the  petition  in  bankruptcy,  or  within  four  months 
before  the  filing  thereof,  with  a  view  to  its  use  for  the  purpose  of  set- 
off,  with  knowledge  or  notice  that  the  bankrupt  was  insolvent  or  had 
permitted  an  act  of  bankruptcy.  Obviously,  the  present  case  does  not 
come  within  the  exceptions  to  the  general  rule  made  by  subdivision  (b). 
It  cannot  be  doubted  that,  except  under  special  circumstances,  or 


SECT.  II.]      NEW   YORK   COUNTY   NATIONAL   BANK  V.   MASSEY.  261 

where  there  is  a  statute  to  the  contrary,  a  deposit  of  money  upon  gen- 
eral account  with  a  bank  creates  the  relation  of  debtor  and  creditor. 
The  money  deposited  becomes  a  part  of  the  general  fund' of  the  bank, 
to  be  dealt  with  by  it  as  other  moneys,  to  be  lent  to  customers,  and 
parted  with  at  the  will  of  the  bank,  and  the  right  of  the  depositor  is  to 
have  this  debt  repaid  in  whole  or  in  part  by  honoring  checks  drawn 
against  the  deposits.  It  creates  an  ordinary  debt,  not  a  privilege  or 
right  of  a  fiduciary  character.  Bank  of  the  Republic  v.  Millard,  10 
Wall.  152.  Or,  as  defined  by  Mr.  Justice  WHITE  in  the  case  of  Davis 
v.  Elmira  Savings  Bank,  161  U.  S.  288  : 

"  The  deposit  of  money  by  a  customer  with  his  banker  is  one  of 
loan,  with  the  superadded  obligation  that  the  money  is  to  be  paid, 
when  demanded,  by  a  check."  Stanley  v.  Kimball,  92  U.  S.  369. 

It  is  true  that  the  findings  of  fact  in  this  case  establish  that  at  the 
time  these  deposits  were  made  the  assets  of  the  depositors  were  con- 
siderably less  than  their  liability,  and  that  they  were  insolvent,  but 
there  is  nothing  in  the  findings  to  show  that  the  deposit  created  other 
than  the  ordinary  relation  between  the  bank  and  its  depositor.  The 
check  of  the  depositor  was  honored  after  this  deposit  was  made,  and 
for  aught  that  appears  Stege  Brothers  might  have  required  the  amount 
of  the  entire  account  without  objection  from  the  bank,  notwithstanding 
their  financial  condition. 

We  are  to  interpret  statutes,  not  to  make  them.  Unless  other  sec- 
tions of  the  law  are  controlling,  or  in  order  to  give  a  harmonious 
construction  to  the  whole  act  a  different  interpretation  is  required,  it 
would  seem  clear  that  the  parties  stood  in  the  relation  defined  in  sec- 
tion 68a  with  the  right  to  set  off  mutual  debts,  the  creditor  being 
allowed  to  prove  but  the  balance  of  the  debt. 

Section  68a  of  the  Bankruptcy  Act  of  1898  is  almost  a  literal  repro- 
duction of  section  20  of  the  Act  of  1867.  So  far  as  we  have  been 
able  to  discover,  the  holdings  were  uniform  under  that  act  that  set-off 
should  be  allowed  as  between  a  bank  and  a  depositor  becoming  bank- 
rupt. In  re  Petrie,  Fed.  Cas.  No.  11,040;  Blair  v.  Allen,  3  Dill.  101; 
Scammon  v.  Kimball,  92  U.  S.  362.  In  Traders'  Bank  v.  Campbell,  14 
Wall.  87,  the  right  of  set-off  was  not  relied  upon,  but  a  deposit  was 
seized  on  a  judgment  which  was  a  preference. 

But  it  is  urged  that,  under  section  60a,  this  transaction  amounts  to 
giving  a  preference  to  the  bank,  by  enabling  it  to  receive  a  greater 
percentage  of  its  debts  than  other  creditors  of  the  same  class.  A 
transfer  is  defined  in  section  1  (25)  of  the  act  to  include  the  sale  and 
every  other  and  different  method  of  disposing  of,  or  parting  with, 
property,  or  the  possession  of  property,  absolutely  or  conditionally, 
as  a  payment,  pledge,  mortgage,  gift  or  security.  While  these  sec- 
tions are  not  to  be  narrowly  construed  so  as  to  defeat  their  purpose,  no 
more  can  they  be  enlarged  by  judicial  construction  to  include  transac- 
tions not  within  the  scope  and  purpose  of  the  act.  This  section  1  (25), 
read  with  sections  60a  and  57g,  requires  the  surrender  of  preferences 


262        NEW  YORK   COUNTY   NATIONAL   BANK  V.    MASSEY.       [CHAP.  IV. 

having  the  effect  of  transfers  of  property  "  as  payment,  pledge,  mort- 
gage, gift  or  security,  which  operate  to  diminish  the  estate  of  the 
bankrupt  and  prefer  one  creditor  over  another." 

The  law  requires  the  surrender  of  such  preferences  given  to  the 
creditor  within  the  time  limited  in  the  act  before  he  can  prove  his 
claim.  These  transfers  of  property,  amounting  to  preferences,  con- 
template the  parting  with  the  bankrupt's  property  for  the  benefit  of 
the  creditor,  and  the  consequent  diminution  of  the  bankrupt's  estate. 
It  is  such  transactions,  operating  to  defeat  the  purposes  of  the  act, 
which,  under  its  terms,  are  preferences. 

As  we  have  seen,  a  deposit  of  money  to  one's  credit  in  a  bank  does 
not  operate  to  diminish  the  estate  of  the  depositor,  for  when  he  parts 
with  the  money  he  creates  at  the  same  time,  on  the  part  of  the  bank, 
an  obligation  to  pay  the  amount  of  the  deposit  as  soon  as  the  depositor 
may  see  fit  to  draw  a  check  against  it.  It  is  not  a  transfer  of  property 
as  a  payment,  pledge,  mortgage,  gift  or  security.  It  is  true  that  it 
creates  a  debt,  which,  if  the  creditor  may  set  it  off  under  section  68, 
amounts  to  permitting  a  creditor  of  that  class  to  obtain  more  from  the 
bankrupt's  estate  than  creditors  who  are  not  in  the  same  situation,  and 
do  not  hold  any  debts  of  the  bankrupt  subject  to  set-off.  But  this 
does  not,  in  our  opinion,  operate  to  enlarge  the  scope  of  the  statute 
defining  preferences  so  as  to  prevent  set-off  in  cases  coming  within  the 
terms  of  section  68a.  If  this  argument  were  to  prevail  it  would,  in 
cases  of  insolvency,  defeat  the  right  of  set-of  recognized  and  enforced 
in  the  law,  as  every  creditor  of  the  bankrupt  holding  a  claim  against 
the  estate  subject  to  reduction  to  the  full  amount  of  a  debt  due  the 
bankrupt  receives  a  preference  in  the  fact  that  to  the  extent  of  the  set- 
off  he  is  paid  in  full. 

It  is  insisted  that  this  court,  in  the  case  of  Pirie  v.  Chicago  Title  & 
Trust  Co.,  182  U.  S.  438,  held  a  payment  of  money  to  be  a  transfer  of 
property  within  the  terms  of  the  Bankrupt  Act,  and  when  made  by  an 
insolvent  within  four  months  of  the  filing  of  the  petition  in  bankruptcy, 
to  amount  to  a  preference,  and  that  case  is  claimed  to  be  decisive  of  this. 
In  the  Pirie  case  the  turning  question  was  whether  the  payment  of 
money  was  a  transfer  within  the  meaning  of  the  law,  and  it  was  held 
that  it  was.  There  the  payment  of  the  money  within  the  time  named 
in  the  Bankrupt  Law  was  a  parting  with  so  much  of  the  bankrupt's 
estate,  for  which  he  received  no  obligation  of  the  debtor,  but  a  credit 
for  the  amount  of  his  debt.  This  was  held  to  be  a  transfer  of  property 
within  the  meaning  of  the  law.  It  is  not  necessary  to  depart  from  the 
ruling  made  in  that  case,  that  such  payment  was  within  the  operation 
of  the  law,  while  a  deposit  of  money  upon  an  open  account  subject  to 
check,  not  amounting  to  a  payment,  but  creating  an  obligation  upon 
the  part  of  the  bank  to  repay  upon  the  order  of  the  depositor,  would 
not  be.  Of  the  case  of  Pirie  v.  Chicago  Title  &  Trust  Co.,  it  was  said, 
in  Jaquith  v.  Alden,  189  U.  S.  78,  82: 

"The  judgment  below  was  affirmed  by  this  court,  and  it  was  held 


SECT.  II.]       TRUST  &  SAVINGS  BANK  V.  TITLE  A  TRUST  COMPANY.      263 

that  a  payment  of  money  was  a  transfer  of  property,  and  when  made 
on  an  antecedent  debt  by  an  insolvent  was  a  preference  within  section 
60a,  although  the  creditor  was  ignorant  of  the  insolvehcy  and  had  no 
reasonable  cause  to  believe  that  a  preference  was  intended.  The  es- 
tate of  the  insolvent,  as  it  existed  at  the  date  of  the  insolvency,  was 
diminished  by  the  payment,  and  the  creditor  who  received  it  was  en- 
abled to  obtain  a  greater  percentage  of  his  debt  than  any  other  of  the 
creditors  of  the  same  class." 

In  other  words,  the  Pirie  case,  under  the  facts  stated,  shows  a  trans- 
fer of  property  to  be  applied  upon  the  debt,  made  at  the  time  of  the 
insolvency  of  the  debtor,  creating  a  preference  under  the  terms  of  the 
Bankrupt  Law.  That  case  turned  upon  entirely  different  facts,  and  is 
not  decisive  of  the  one  now  before  us.  It  is  true,  as  we  have  seen,  that 
in  a  sense  the  bank  is  permitted  to  obtain  a  greater  percentage  of  its  claim 
against  the  bankrupt  than  other  creditors  of  the  same  class,  but  this  in- 
direct result  is  not  brought  about  by  the  transfer  of  property  within  the 
meaning  of  the  law.  There  is  nothing  in  the  findings  to  show  fraud  or 
collusion  between  the  bankrupt  and  the  bank  with  a  view  to  create  a  pre- 
ferential transfer  of  the  bankrupt's  property  to  the  bank,  and  in  the  ab- 
sence of  such  showing  we  cannot  regard  the  deposit  as  having  other  effect 
than  to  create  a  debt  to  the  bankrupt  and  not  a  diminution  of  his  estate. 

In  our  opinion,  the  referee  and  the  District  Court  were  right  in  hold- 
ing that  the  amount  of  the  deposit  could  be  set  off  against  the  claim  rf 
the  bank,  allowing  it  to  prove  for  the  balance,  and  the  Circuit  Cou^t 
of  Appeals,  in  holding  that  this  deposit  amounted  to  a  preference  to  te 
surrendered  before  proving  the  debt,  committed  error. 

Judgment  of  the  Circuit  Court  of  Appeals  reversed,  and  that  of  tV« 
District  Court  affirmed ;  cause  remanded  to  latter  court. 

Mr.  Justice  MCKENNA  dissents.1 


CONTINENTAL  &  COMMERCIAL  TRUST  &   SAVINGS 
BANK  v.   CHICAGO  TITLE   &  TRUST  COMPANY. 

SUPREME  COURT  OP  THE  UNITED  STATES,  JANUARY  6-JuNE  10,  1913. 

[Reported  in  229  United  States,  435.] 

MR.  JUSTICE  DAY  delivered  the  opinion  of  the  court. 

This  is  a  controversy  arising  in  a  bankruptcy  proceeding,  and  in- 
volves questions  of  the  right  to  certain  property,  as  between  the  appel- 
lant, the  Continental  &  Commercial  Trust  &  Savings  Bank,  and  the 

i  In  Studley  v.  Boylston  Bank,  229  U.  S.  523,  the  bankrupt  on  the  maturity  of  notes 
held  by  the  defendant  bank,  paid  them  by  checks  drawn  on  the  same  bank  with  which 
the  bankrupt  kept  a  deposit  account.  The  court  held  that  since  on  the  maturity  of  the 
notes  the  bank  could  have  set  them  off  against  the  deposit  account,  it  was  not  illegal 
for  the  parties  to  do  before  the  petition  what  the  trustees  would  have  been  obliged  to 
allow  after  the  petition. 


264      TRUST  A  SAVINGS  BANK  V.  TITLE  <k  TRUST  COMPANY.     [CHAP.  IV. 

Chicago  Title  and  Trust  Company,  as  trustee  in  bankruptcy  of  Earl 
H.  Prince,  bankrupt.  Two  items  are  involved :  First,  the  sum  of 
$4,250,  the  amount  of  certain  margin  certificates  issued  by  the  pre- 
decessor of  the  appellant  bank  to  the  bankrupt  Prince ;  and  second,  a 
balance  of  $575.79  remaining  in  Prince's  checking  account  with  the  bank 
of  the  predecessor  of  the  appellant,  therein  deposited  by  the  bankrupt 
The  trustee  brought  the  suit  to  recover  the  amount  of  the  margin  cer- 
tificates and  the  bank  balance  as  having  been  preferentially  transferred 
within  the  terms  of  the  Bankruptcy  Act.  The  District  Court  held  the 
trustee  entitled  to  recover,  and  this  decree  was  affirmed  by  the  Circuit 
Court  of  Appeals,  and  the  case  comes  here. 

There  is  no  controversy  as  to  the  facts.  A  petition  in  bankruptcy 
was  filed  against  Prince  February  15,  1905.  He  had  been  for  several 
years  a  member  of  the  board  of  trade  of  Chicago,  buying  and  selling 
on  the  board  and  subject  to  its  rules.  The  Federal  Trust  &  Savings 
Bank,  the  predecessor  of  the  appellant,  was  engaged  in  the  general 
banking  business  in  the  city  of  Chicago,  and  Prince  did  his  banking 
business  at  that  bank,  and  had  a  general  deposit  and  checking  account 
therein.  By  the  rules  of  the  board  of  trade,  purchasers  and  sellers 
might  require  of  the  other  party  to  the  trade  a  deposit  of  10  per  cent 
of  the  contract  price  of  the  property  bought  or  sold,  and  further  secu- 
rity from  time  to  time  as  the  margin  might  require.  Certain  banks,  of 
which  the  Federal  Trust  &  Savings  Bank  was  one,  were  authorized  to 
issue  margin  certificates,  which  were  in  the  following  form  : 

Federal  Trust  and  Savings  Bank, 

Chicago,  No 

Deposited  by  E.  H.  Prince,  $ 

Dollars.     As  security  on  a  contract  or 

contracts  between  the  depositor  and ,  which  amount 

is  payable  on  the  return  of  this  certificate,  or  the  duplicate  of  the  same 
(one  of  which  being  paid,  the  other  shall  become  void),  duly  endorsed 
by  both  of  the  above-named  parties,  or  on  the  order  of  the  president  of 
the  Board  of  Trade  of  the  city  of  Chicago,  indorsed  on  either  of  the 
original  or  duplicate  hereof,  as  provided  by  the  rules  of  said  Board  of 
Trade  under  which  the  above-named  deposit  has  been  made. 

Original. 
Not  negotiable  or  transferable, 

Cashier. 

Margin  certificates  on  various  days  from  September  15,  1904,  to 
February  9,  1905,  in  the  form  above  set  forth,  had  been  issued  to 
Prince,  to  procure  which  he  had  drawn  his  check  against  his  checking 
account  with  the  bank,  or  deposited  with  it  the  requisite  sum  of  money. 
Each  of  the  said  certificates  evidenced  a  liability  of  the  bank  to  Prince 
for  the  amount  stated  in  the  certificate,  unless,  because  of  the  default 
by  Prince  on  the  contract  for  which  the  certificate  was  held  by  the 


SECT.  II.]      TRUST  <fc  SAVINGS  BANK  V.  TITLE  A  TRUST  COMPANY.      265 

other  party  as  security,  it  was  paid  to  such  other  party.     The  record 
of  certificates  was  kept  in  the  margin  register  of  the  bank. 

On  the  14th  of  February,  1905,  the  vice-president  of  the  bank  and 
Prince  had  a  conference  concerning  the  financial  troubles  of  Prince, 
and  one  W.  P.  Anderson,  of  W.  P.  Anderson  &  Company,  was  called 
to  the  bank.  A  conference  was  had  as  to  the  best  way  of  closing  out 
Prince's  open  trades,  with  the  result  that  Anderson  agreed  to  act  in 
the  premises,  and  on  the  same  day,  February  14th,  and  the  day 
following,  Prince  transferred  all  his  open  trades  in  accordance  with 
the  rules  of  the  board  to  Anderson,  for  his  company,  and  the  latter 
agreed  to  carry  out  Prince's  contracts,  and  proceeded  to  do  so. 
Anderson  &  Company,  on  February  15,  1905,  substituted  its  own 
securities  for  Prince's  trades,  and  thereby  recovered  the  certificates 
deposited  by  Prince,  which  were  turned  over  to  the  Federal  Trust  & 
Savings  Bank.  Prince  was  at  that  time  indebted  to  the  bank  in  the 
sum  of  about  $37,000,  and  the  bank,  upon  the  return  of  the  certificates 
from  Anderson  &  Company,  applied  the  money  secured  by  the  certifi- 
cates to  Prince's  indebtedness  to  the  bank.  The  master  found : 

"  That  taking  the  said  open  trades  so  transferred  as  a  whole,  the 
condition  of  the  market  at  the  time  of  the  transfer  was  such  that  the 
aggregate  sum  of  the  amounts  due  thereon  to  Earl  H.  Prince  from 
members  of  the  Board  of  Trade,  if  he  had  then  settled  the  trades,  would 
have  been  greater  than  the  aggregate  sums  of  the  amount  then  due 
thereon  from  Prince  to  others  of  said  members  of  the  Board ;  that 
among  the  open  trades  so  transferred  and  settled  were  trades  with  the 
said  members  of  the  Board  who  held  securities  or  margin  certificates 
furnished  by  the  said  Prince. 

"  That  on  February  15,  1905,  the  market  was  constantly  changing. 
If  the  trades  with  the  members  holding  Prince's  margin  certificates 
had  been  closed  at  the  opening  of  the  Board  on  that  day  by  the  mem- 
bers holding  them,  there  would  have  been  due  from  them  to  Prince  in 
the  aggregate  a  balance  of  approximately  one-third  of  the  amount  of 
the  certificates  after  deducting  therefrom  the  amount  that  would  have 
been  due  to  them  from  Prince.  If  the  trades  had  been  closed  later  in 
the  day,  the  balance  coming  to  Prince  would  have  been  considerably 
less.  However,  if  Prince  had  carried  out  all  of  these  contracts,  the 
profits  which  he  would  make  upon  some  of  them  would  have  been  about 
balanced  by  the  losses  which  he  would  have  sustained  on  others." 

Furthermore: 

"That  the  plan  adopted  at  the  conference  between  Mr.  Prince,  Mr. 
Anderson,  and  Mr.  Castle  was  doubtless  the  best  plan  that  could  have 
been  adopted  to  avoid  serious  loss  to  Prince,  or  to  his  creditors.  The 
condition  of  the  market  was  such  at  that  time  that  had  Anderson  & 
Company  not  taken  charge  of  Prince's  trades  and  carried  them  through, 
a  panic  might  have  ensued  on  the  Board,  and  the  market  so  fluctuated 
that  the  amount  of  all  of  the  margin  certificates,  and  quite  likely  a  con- 
siderable more,  would  have  been  lost  to  Prince  and  his  creditors." 


266      TRUST  A  SAVINGS  BANK  V.  TITLE  &  TRUST  COMPANY.      [CHAP.  IV. 

The  facts  with  respect  to  the  bank  balance  of  $575.79  are :  On  Feb- 
ruary 10,  1905,  the  bank  called  the  loans  of  Prince,  and,  such  loans 
not  being  paid,  the  bank  applied  to  them  the  sum  of  $3,095  then  on 
deposit  on  Prince's  checking  account,  leaving  the  sum  of  $3.25  in  that 
account.  On  the  same  day  the  bank  agreed  with  Prince  that,  if  he 
would  thereafter  make  deposits  for  such  purpose,  it  would  pay  certain 
salary  and  pay  roll  checks  of  Prince  and  checks  issued  to  the  board  of 
trade  clearing  house.  Checks  were  paid  on  divers  days  between  the 
4th  and  14th  of  February,  1905,  to  the  amount  of  $2,506.46,  and 
Prince  deposited  with  the  bank  between  the  10th  and  14th  of  February 
a  total  of  $3,079,  all  such  items  being  entered  upon  the  books  of  the 
bank  as  of  February  14,  1905.  The  amount  deposited  exceeded  the 
amount  checked  out  by  $572.54,  and  this  amount,  with  the  $3.25  re- 
maining to  the  credit  of  Prince,  as  above  set  forth,  left  a  balance  of 
$575.79,  which  the  bank,  on  February  14th,  applied  to  Prince's  general 
indebtedness  to  it. 

The  bank  had  reasonable  cause  to  believe  that  Prince  was  insolvent 
from  and  after  February  10th,  and  during  the  transactions  from  that 
date  to  and  including  February  15th. 

The  trustee  relies  upon  certain  sections  of  the  Bankruptcy  Act,  which 
he  claims  make  the  transaction  with  Prince  by  which  the  bank  acquired 
the  certificates  and  the  bank  deposit  a  preferential  one,  and  therefore 
void  within  the  terms  of  the  act. 

On  the  other  hand,  the  bank  claims  the  right  to  set  off  the  amount 
of  the  certificates  and  bank  balance  against  the  indebtedness  of  Prince 
to  it  by  reason  of  section  68a  of  the  Bankruptcy  Act. 

This  case  must  be  dealt  with  in  the  light  of  certain  principles,  estab- 
lished by  decisions  of  this  court,  in  determining  the  applicable  provisions 
of  the  Bankruptcy  Act.  To  constitute  a  preferential  transfer  within 
the  meaning  of  the  Bankruptcy  Act  there  must  be  a  parting  with  the 
bankrupt's  property  for  the  benefit  of  the  creditor,  and  a  consequent 
diminution  of  the  bankrupt's  estate.  New  York  County  Nat.  Bank  v. 
Massey,  192  U.  S.  138,  147,  11  Am.  B.  R.  42,  48  L.  Ed.  380,  384,  24 
Sup.  Ct.  Rep.  199  ;  National  Bank  v.  National  Herkimer  County  Bank, 
225  U.  S.  178,  184,  28  Am.  B.  R.  218,  56  L.  Ed.  1042,  1046,  32  Sup. 
Ct.  Rep.  633. 

Much  discussion  appears  in  the  briefs  of  counsel  as  to  whether  the 
deposits  evidenced  by  the  margin  certificates  were  general  deposits, 
creating  between  the  bank  and  the  depositor  the  relation  of  debtor  and 
creditor,  or  were  special  deposits  which  the  bank  had  no  authority  to 
mingle  with  its  general  funds.  We  do  not  deem  it  necessary  to  enter 
into  a  discussion  of  this  question,  with  a  view  to  determining  the  tech- 
nical question  as  to  the  nature  of  the  relation  thus  created  between  the 
bank  and  the  depositor.  In  cases  of  this  character  it  is  essential  to 
learn  just  what  has  taken  place  between  the  parties,  with  a  view  to 
ascertaining  whether  a  preferential  transfer  of  property  to  a  creditor 
has  resulted. 


SECT.  II.]      TRUST  &  SAVINGS  BANK  V.  TITLE  A  TRUST  COMPANY.       267 

The  statement  of  facts  already  made  shows  that  these  certificates 
were  payable  to  Prince,  unless  they  were  required  to  be  paid  to  the 
party  holding  them  as  security  for  Prince's  dealings  upon  the  board  of 
trade.  It  is  further  evident  from  the  facts  stated  that  without  the  co- 
operation of  Anderson  &  Company,  who  took  the  place  of  Prince  upon 
the  board  of  trade,  substituted  their  securities  for  those  of  Prince,  and 
carried  out  his  obligations,  the  certificates  would  have  had  no  value  to 
the  estate.  By  the  arrangement  made,  Anderson  &  Company  took  hold 
of  the  situation,  and  carrying  out  the  deals  upon  which  Prince  was 
bound,  cleared  the  certificates  of  any  obligation  to  others,  and  they 
thereby  became  payable  to  Prince.  What  was  done  did  not  in  fact 
diminish  the  estate  of  Prince,  otherwise  available  to  the  creditors  in 
the  bankruptcy  administration,  for  the  traders  holding  them  would 
have  had  the  benefit  of  the  deposits  under  the  terms  of  the  certificates 
and  the  rules  of  the  board  of  trade.  It  therefore  appears  that  this 
essential  element  of  a  preferential  transfer  within  the  meaning  of  the 
Bankruptcy  Act  —  diminution  of  the  bankrupt  estate  —  is  wanting. 
The  fact  that  what  was  done  worked  to  the  benefit  of  the  creditor,  and 
in  a  sense  gave  him  a  preference,  is  not  enough,  unless  the  estate  of 
the  bankrupt  was  thereby  diminished.  New  York  County  Nat.  Bank 
v.  Massey,  supra. 

It  is  contended,  however,  that  the  set-off  cannot  be  allowed  because 
of  the  provisions  of  section  68b  of  the  Bankruptcy  Act. 

It  is  the  main  purpose  of  this  statute,  as  its  terms  show,  to  prevent 
debtors  of  the  bankrupt  from  acquiring  claims  against  the  bankrupt 
for  use  by  way  of  set-off  and  reduction  of  their  indebtedness  to  the 
estate.  There  is  no  question  of  the  solvency  of  Prince  when  he  de- 
posited the  money  to  secure  the  certificates,  and  what  was  done  was 
not  the  acquisition  of  a  claim  against  Prince  with  a  view  to  setting  it 
off  against  the  bank's  indebtedness  on  the  certificates,  but  vras  the 
satisfaction,  without  diminution  of  the  estate  of  the  bankrupt,  of  pos- 
sible claims  of  others,  who,  in  the  event  of  Prince's  default,  would 
have  been  entitled  to  the  deposits  represented  by  the  certificates.  We 
do  not  think  such  transaction  comes  within  the  language  or  reason  of 
section  GSb.1 

As  to  the  $575.79,  we  think  the  right  to  set-off  this  deposit  is  estab- 
lished by  the  principles  laid  down  in  New  York  County  Nat.  Bank  v. 
Massey,  supra.  Here  there  was  a  deposit  subject  to  be  checked  out 
by  the  bankrupt  for  specific  purposes.  The  money  was  not  placed  in 
the  bank  with  a  view  to  giving  it  a  benefit,  except  indirectly,  because 
of  the  deposit.  It  was  subject  to  Prince's  check,  and  all  of  it  might 
have  been  checked  out  for  the  purposes  intended. 

The  decrees  of  the  Circuit  Court  of  Appeals  and  of  the  District 
Court  are  reversed,  and  the  case  remanded  to  the  District  Court  for 
further  proceedings  in  conformity  with  this  opinion. 

1  The  court  here  distinguishes  Western  Tie  &  Timber  Co.  v.  Brown,  196  U.  S.  502. 


268          BANK   OF   NEWPORT   V.  HERKIMER   COUNTY   BANK.      [CHAP.  IV. 


NATIONAL  BANK  OF  NEWPORT  v.  NATIONAL  HERKIMER 
COUNTY  BANK. 

UNITED  STATES  SUPREME  COURT,  FEBRUARY  28-MAY  27,  1912. 

[Reported  in  225  United  States,  178.] 

MR.  JUSTICE  HUGHES  delivered  the  opinion  of  the  court. 

This  suit  was  brought  in  the  District  Court  of  the  United  States  for 
the  Northern  District  of  New  York  by  Charles  B.  Mason,  as  trustee  in 
bankruptcy  of  thflEfrewport  Knitting  Company,  to  recover  the  amount 
of  an  alleged  preference.  Decree  for  the  complainant  was  reversed  by 
the  Circuit  Court  of  Appeals,  which  remanded  the  cause  with  instruc- 
tion to  dismiss  the  bill.  Subsequently,  the  trustee  assigned  the  claim 
in  suit  to  the  National  Bank  of  Newport,  New  York,  which  was  sub- 
stituted as  complainant  and  brought  this  appeal. 

The  bankrupt,  the  Newport  Knitting  Company,  was  organized  in 
1900,  by  Titus  Sheard  and  his  associates,  and  was  engaged  in  the  manu- 
facture of  knit  goods  at  Newport,  New  York.  Proceedings  for  its 
voluntary  dissolution  were  begun  in  October,  1903,  and  on  December 
30,  1903,  a  petition  in  bankruptcy  was  filed  against  it.  It  was  ad- 
judged a  bankrupt  on  January  23,  1904. 

Several  of  the  officers  and  directors  of  this  company  were  also  offi- 
cers and  directors  of  a  corporation  known  as  the  Titus  Sheard  Com- 
pany, which  manufactured  knit  goods  at  Little  Falls.  Titus  Sheard 
was  the  leading  spirit  in  both  corporations;  in  each  his  son-in-law  was 
the  secretary  and  his  nephew  the  general  manager.  The  books  of  the 
Newport  Knitting  Company  were  kept  at  the  office  of  the  Titus  Sheard 
Company.  It  does  not  appear  that  either  company  held  stock  in  the 
other,  nor  is  it  shown  to  what  extent  the  same  persons  had  a  stock  in- 
terest in  both.  And  upon  the  record  the  conclusion  must  be  that, 
while  the  management  of  the  two  concerns  was  largely  in  the  same 
hands,  they  were  distinct  organizations,  conducting  separate  businesses. 

The  Titus  Sheard  Company  had  a  deposit  account  and  discounted 
its  paper  with  the  defendant,  the  National  Herkimer  County  Bank  of 
Little  Falls,  of  which  Sheard  was  a  director.  The  Newport  Knitting 
Company  was  not  a  customer  of  the  defendant  bank,  but  kept  its 
account  with  the  National  Bank  of  Newport. 

The  transaction  which  is  alleged  to  constitute  a  preference  was  as 
follows  :  On  January  7,  1901,  the  Newport  Knitting  Compan}^  gave  its 
note  for  $5,773.05,  at  four  months,  to  the  Titus  Sheard  Company,  to 
pay  for  machinery  and  supplies.  The  Titus  Sheard  Company  indorsed 
the  note  and  had  it  discounted  by  the  defendant  bank,  receiving  the 
avails  for  its  own  use.  The  note  was  reduced  by  part  payment  to 
$5,000,  and  for  this  sum  it  was  renewed  every  four  months  with  like 
indorsement,  the  last  renewal  of  this  sort  being  on  May  11,  1903. 


SECT.  II.]      BANK   OF   NEWPORT   V.    HERKIMER   COUNTY   BANK.  269 

In  August,  1903,  the  defendant  bank  held  a  large  amount  of  paper 
made  or  indorsed  by  the  Titus  Sheard  Company,  and  insisted  upon  se- 
curity. Thereupon  the  Titus  Sheard  Company  submitted  to  the  bank  a 
statement  of  its  affairs,  and  on  August  11,  1903,  executed  an  instrument, 
also  signed  by  Mrs.  Sheard  and  certain  other  officers  individually,  by 
which  after  reciting  the  determination  to  liquidate  its  business,  they 
purported  to  pledge  its  "  mill  property,  all  the  machinery  in  the  same, 
and  the  warehouse,  together  with  all  our  assets  of  our  company,  and 
also  the  individual  properties,  as  per  list  hereto  attached,  to  secure  the 
National  Herkimer  County  Bank  for  all  notes  of  ours  which  they  now 
hold,  or  may  hereafter  hold,  and  for  all  paper  indorsed  by  us,  now  held 
by  the  bank,  or  that  may  be  held  by  it  in  the  future." 

This  agreement  evidently  contemplated  that  the  Titus  Sheard  Com- 
pany should  continue  in  possession  of  its  property  and  should  have 
charge  of  the  winding  up  of  its  affairs,  on  the  understanding  expressed, 
which  was,  in  substance,  that  the  property  should  be  speedily  con- 
verted into  money,  that  bills  payable  held  by  creditors  other  than  the 
bank  should  be  renewed  so  far  as  possible,  and  that  "all  surplus 
moneys,  as  fast  as  collected,  not  required  to  pay  the  outstanding  notes 
held  by  other  creditors,"  should  be  applied  in  payment  of  the  indebt- 
edness to  the  bank.  It  was  declared  to  be  the  intention  to  dispose  of 
the  property  so  that  all  the  indebtedness  should  be  paid  before  Janu- 
ary 1,  1904. 

On  August  22,  1903,  there  was  substituted  for  the  above-mentioned 
note  of  the  Newport  Knitting  Company,  indorsed  by  the  Titus  Sheard 
Company  and  held  by  the  bank,  a  new  three  months'  note  of  the  New- 
port Knitting  Company  for  the  same  amount,  similarly  indorsed ;  and 
the  Titus  Sheard  Company  secured  this  note  by  the  delivery  to  the  bank 
of  specific  assignments  of  its  bills  receivable,  amounting  to  $6,300. 
On  September  26,  1903,  before  maturity,  the  Titus  Sheard  Company 
paid  to  the  bank  the  amount  of  this  note,  less  accrued  interest, 
$4,953.33,  and  took  up  the  note  and  collateral.  This  payment 
was  made  by  the  Titus  Sheard  Company,  acting  in  its  own  behalf, 
by  a  check  drawn  against  the  funds  to  its  credit  in  the  bank.  The 
amount  so  paid  was  then  charged  by  that  company  to  the  Newport 
Knitting  Company,  to  which  it  was  indebted  on  open  account  in  a 
larger  sum  ;  and  on  the  books  of  the  Newport  Knitting  Company 
a  corresponding  credit  was  given  to  the  Titus  Sheard  Company.  So 
far  as  appears,  this  charge  of  the  sum  paid  on  the  note  against  the 
amount  owing  to  the  Newport  Knitting  Company  was  not  known  to 
the  bank. 

It  is  insisted  that  this  transaction  amounted  to  a  preference  of  the 
bank  by  the  Newport  Knitting  Company.  It  is  said  that  "the  bank- 
rupt  parted  with  property  to  the  amount  of  the  note,  and  the  bank  re- 
ceived it  and  was  benefited  to  that  amount,"  to  the  detriment  of  the 
other  creditors  of  the  Newport  Knitting  Company,  then  insolvent ;  or, 
as  the  District  Court  put  it,  that  "a  short  cut  was  taken  by  common 


270         BANK    OF   NEWPORT   V.    HEKKIMER    COUNTY   BANK.      [CHAP.  IV. 

consent,  and  the  check  was  passed  to  the  bank  and  the  amount  charged 
to  the  Knitting  Company,  so  that  it,  in  fact,  paid  the  note."1 

To  constitute  a  preference,  it  is  not  necessary  that  the  transfer  be 
made  directly  to  the  creditor.  It  may  be  made  to  another,  for  his  bene- 
fit. If  the  bankrupt  has  made  a  transfer  of  his  property,  the  effect  of 
which  is  to  enable  one  of  his  creditors  to  obtain  a  greater  percentage 
of  his  debt  than  another  creditor  of  the  same  class,  circuity  of  arrange- 
ment will  not  avail  to  save  it.  A  "transfer"  includes  "the  sale  and 
every  other  and  different  mode  of  disposing  of  or  parting  with  property, 
or  the  possession  of  property,  absolutely  or  conditionally,  as  a  payment, 
pledge,  mortgage,  gift  or  security."  Sec.  1  (25). 

It  is  not  the  mere  form  or  method  of  the  transaction  that  the  act  con- 
demns, but  the  appropriation  by  the  insolvent  debtor  of  a  portion  of  his 
property  to  the  payment  of  a  creditor's  claim,  so  that  thereby  the  estate 
is  depleted  and  the  creditor  obtains  an  advantage  over  other  creditors. 
The  "accounts  receivable"  of  the  debtor,  that  is,  the  amounts  owing 
to  him  on  open  account,  are,  of  course,  as  susceptible  of  preferential 
disposition,  as  other  property;  and  if  an  insolvent  debtor  arranges 
to  pay  a  favored  creditor  through  the  disposition  of  such  an  account,  to 
the  depletion  of  his  estate,  it  must  be  regarded  as  equally  a  preference, 
whether  he  procures  the  payment  to  be  made  on  his  behalf  by  the 
debtor  in  the  account  —  the  same  to  constitute  a  payment  in  whole  or 
part  of  the  latter's  debt  —  or  he  collects  the  amount  and  pays  it  over  to 
his  creditor  directly.  This  implies  that,  in  the  former  case,  the  debtor 
in  the  account,  for  the  purpose  of  the  preferential  payment,  is  acting 
as  the  representative  of  the  insolvent,  and  is  simply  complying  with 
the  directions  of  the  latter  in  paying  the  money  to  his  creditor. 

But,  unless  the  creditor  takes  by  virtue  of  a  disposition  by  the  insol- 
vent debtor  of  his  property  for  the  creditor's  benefit,  so  that  the  estate 
of  the  debtor  is  thereby  diminished,  the  creditor  cannot  be  charged 
with  receiving  a  preference  by  transfer.  Western  Tie  &  Timber  Co. 
v.  Brown,  196  U.  S.  502,  509  ;  Kector  v.  City  Deposit  Bank  Co.,  200 
U.  S.  405,  419. 

"These  transfers  of  property,  amounting  to  preferences,  contemplate 
the  parting  with  the  bankrupt's  property  for  the  benefit  of  the  creditor, 
and  the  consequent  diminution  of  the  bankrupt's  estate."  New  York 
County  Nat.  Bank  v.  Massey,  192  U.  S.  138,  147,  11  Am.  B.  R.  42,  48 
L.  Ed.  380,  384,  24  Sup.  Ct.  199. 

Here,  the  payment  to  the  bank  did  not  proceed  from  the  bankrupt, 
the  Newport  Knitting  Company.  The  Titus  Sheard  Company  had  a 
standing  quite  apart  from  its  relation  to  the  Newport  Knitting  Com- 
pany as  a  debtor  in  the  account.  In  the  transaction  with  the  bank, 
the  Titus  Sheard  Company  acted  on  its  own  behalf.  As  the  holder  of 
the  original  note,  that  company  had  indorsed  it  to  the  bank,  taking 
for  its  own  benefit  the  proceeds  of  the  discount.  Its  obligation  as 

1  The  court  here  quotes  as  the  controlling  provision  of  the  statute,  section  60,  as  it 
stood  prior  to  1910. 


SECT.  II.]      BANK   OF   NEWPORT   V.  HERKIMER   COUNTY   BANK.  271 

indorser  was  continued  by  the  renewal,  and  to  secure  the  bank  on  the 
last  renewal  it  had  deposited  its  own  collateral.  It  took  up  the  note  with 
its  own  funds  and  received  back  the  security.  Neither  directly  nor 
indirectly  was  this  payment  to  the  bank  made  by  the  Newport  Knitting 
Company,  and  the  property  of  that  company  was  not  thereby  depleted. 

The  fact,  then,  is  not,  as  it  is  contended,  that  "  the  bankrupt  parted 
with  property  to  the  amount  of  the  note,  and  the  bank  received  it,"  but 
rather  that  the  bankrupt  parted  with  nothing,  and  the  bank  received  the 
money  of  the  indorser,  and  redelivered  to  the  indorser  the  paper  and 
collateral.  When  the  Titus  Sheard  Company  took  up  the  note,  it  was 
credited  with  the  amount  of  the  payment  in  its  account  with  the  Newport 
Knitting  Company.  But  the  question,  in  the  circumstances  disclosed, 
of  the  right  of  the  Titus  Sheard  Company  to  a  set-off  against  its  indebt- 
edness on  the  account,  is  distinct  from  the  question  whether  the  bank 
received  a  preference.  Western  Tie  &  Timber  Co.  v.  Brown,  supra.  It 
would  be  only  by  the  allowance  of  such  a  set-off  that  the  bankrupt  estate 
would  be  diminished.  And,  as  was  said  by  the  Circuit  Court  of  Appeals, 
"if  the  Sheard  Company,  knowing  the  Newport  Company  to  be  insol- 
vent, acquired  the  note  with  a  view  to  using  it  as  a  set-off  or  counter- 
claim against  its  debt,  it  could  not  legally  do  so.  Bankruptcy  Law, 
section  68b." 

The  amount  of  the  indebtedness  of  the  Titus  Sheard  Company  could 
still  be  collected  by  the  trustee. 

It  is  urged  that,  by  virtue  of  the  instrument  already  mentioned,  which 
was  executed  by  the  Titus  Sheard  Company  on  August  11,  1903,  all 
the  assets  of  that  company  had  been  assigned  to  the  bank,  and  hence, 
that  the  security  placed  with  the  bank  on  the  last  renewal  of  the  note 
was  already  held  under  this  instrument,  and  continued  to  be  so  held 
after  the  note  was  taken  up,  despite  the  surrender  of  the  specific  assign- 
ments. It  is  said  further  that,  as  a  result  of  the  execution  of  this  in- 
strument, the  bank  "stepped  into  the  place  of  the  Sheard  Company," 
and  knew  the  condition  of  the  account  with  the  Newport  Knitting  Com- 
pany and  the  charge  that  was  made  to  it. 

The  argument  attributes  to  the  instrument  undue  importance  and  an 
effect  which  it  did  not  accomplish.  It  was  far  from  being  an  adequate 
legal  security.  Apparently,  the  Titus  Sheard  Company  was  left  in  the 
possession  of  the  property,  and  its  officers  continued  its  management 
with  freedom  to  sell,  to  collect  accounts,  to  pay  outstanding  notes  held 
by  others  than  the  bank  (so  far  as  they  could  not  be  renewed),  and 
generally  to  liquidate  the  business  in  accordance  with  the  expressed 
intention  to  convert  the  assets  into  money  as  speedily  as  possible,  and 
thus  to  meet  ail  the  obligations  to  the  bank.  To  this  end,  the  company 
and  its  officers  were  to  "work  faithfully,"  and  the  surplus  moneys  as 
fast  as  realized  were  to  be  devoted  to  the  payment  of  the  indebtedness. 
It  was  natural  that  the  bank  should  require  security  for  the  note  of  a 
more  definite  and  satisfactory  character ;  that  is,  proper  collateral. 
And  when  the  bank  received  the  specific  collateral  deposited  by  the 


272  EICHARDSON    V.   SHAW.  [CHAP.  IV. 

Titus  Sheard  Company  on  the  renewal,  the  bank  obtained  a  control 
over  it  which  otherwise  it  did  not  possess,  and  this  control  is  surren- 
dered on  the  redelivery.  In  view  of  the  effort  that  was  being  made  to 
reduce  the  obligation  of  the  company,  held  by  the  bank,,  it  cannot  be 
thought  surprising  that  the  note  with  the  collateral  was  taken  up  before 
maturity.  It  was  not  shown  that  the  bank  had  nothing  to  do  with  the 
credit  to  the  Titus  Sheard  Company  in  its  account  with  the  Newport 
Knitting  Company.  Nor  does  it  appear  that  the  bank  knew  of  the 
condition  of  this  account,  or  had  any  reason  to  believe  that  it  was  pro- 
posed to  set  off  the  payment  against  an  indebtedness  to  the  bankrupt. 

The  bank  dealt  with  the  Titus  Sheard  Company  as  the  indorser  of 
the  paper ;  and  the  trustee  failed  to  establish  any  right  to  recover  the 
moneys  it  received. 

Decree  affirmed.1 


SECTION    II.    (continued), 
(d)  WHO  MAT  BE  PREFERRED. 

RICHARDSON  v.  SHAW. 

SUPREME  COURT  OF  THE  UNITED  STATES,  JANUARY  17-ApRiL  16,  1908. 
[Reported  in  209  United  States,  365.] 

MR.  JUSTICE  DAY  delivered  the  opinion  of  the  court. 

This  case  comes  here  upon  a  writ  of  certiorari  to  the  United  States 
Circuit  Court  of  Appeals  for  the  Second  Circuit.  The  petitioner 
Richardson  brought  suit  in  the  District  Court  of  the  United  States  for 
the  Southern  District  of  New  York,  as  trustee  in  bankruptcy  of  J. 
Francis  Brown,  against  John  M.  Shaw  and  Alexander  Davidson,  re- 
spondents, to  recover  certain  alleged  preferences. 

Brown,  the  bankrupt,  was  a  stockbroker  transacting  business  in 
Boston.  The  respondents  John  M.  Shaw  and  Alexander  Davidson 
were  partners  and  stockbrokers  transacting  business  in  New  York  as 
John  M.  Shaw  &  Company,  and,  as  customers  of  Brown,  they  trans- 
acted business  with  him  on  speculative  account  for  the  purchase  and 
sale  of  stocks  on  margin. 

In  accordance  with  agreement  and  custom  acquiesced  in  by  the 
parties,  all  securities  bought  by  Brown  might  be  pledged  as  security 
for  his  general  indebtedness  and  were  in  fact  so  pledged.  A  "margin" 
of  at  least  ten  per  cent,  was  required,  and  in  fact  a  larger  margin  was 
kept  up. 

On  June  24,  1903,  the  agent  of  Shaw  &  Company 'learned  of  Brown's 
precarious  financial  condition,  and  demanded  payment  of  $5,000  cash 

1  See  also  Re  Kerlin,  209  Fed.  42  (C.  C.  A.). 


SECT.  II.]  RICHARDSON   V.    SHAW.  273 

from  Brown's  agent,  Fletcher.  At  that  time  the  margins  already  paid 
by  Shaw  &  Company  exceeded  the  agreed  ten  per  cent.,  and  Fletcher 
returned  to  them  $5,000  of  such  margin. 

On  the  following  day  Shaw's  agent  demanded  a  final  settlement  from 
Brown.  At  that  time  Brown  was  insolvent  within  the  meaning  of  the 
bankrupt  law,  and  had  been  for  the  two  preceding  months.  On  June 
26  the  liquidation  of  this  account  was  effected  by  the  payment  by 
Shaw  &  Company  of  the  balance  due  from  them  and  the  turning  over 
to  them  of  the  securities  in  their  account  which  were  redeemed  from 
the  pledgees  in  part  by  the  payment  made  by  Shaw  &  Company  and  in 
part  by  a  payment  by  Brown.  None  of  the  certificates  of  stock  which 
Brown  delivered  to  Shaw  &  Company  were  the  identical  certificates 
which  they  had  delivered  to  Brown  as  margin. 

Among  the  creditors  (customers)  of  Brown  on  the  final  day  of  settle- 
ment there  were  a  number  of  general  customers  upon  transactions  in 
purchase  and  sale  of  stocks  by  Brown  as  broker,  similar  to  the  trans- 
actions in  the  purchase  and  sale  of  stocks  by  Brown  as  broker  for 
Shaw  &  Company. 

On  July  27,  1903,  Brown  made  an  assignment,  and  was  adjudicated 
a  bankrupt  within  four  months. 

It  was  conceded  by  plaintiff's  counsel  that  it  was  the  custom  of  the 
market  to  deliver  shares  from  broker  to  customer  of  the  same  amount 
without  regard  to  whether  they  were  the  identical  shares  received. 

This  suit  was  brought  to  recover  the  $5,000  paid  to  Shaw  &  Com- 
pany June  24,  1903.  The  second  cause  of  action  in  the  suit  states 
that  Shaw  &  Company  are  indebted  to  Brown's  estate  in  the  sum  of 
$10,664.13,  being  the  amount  he  paid  to  redeem  the  pledged  stock  for 
their  benefit. 

The  ground  on  which  the  counsel  for  the  petitioner  predicates  the 
alleged  preferences  in  this  case  is  that  when  the  stockbroker  Brown 
was  approached  for  the  settlement  of  the  transactions  with  Shaw  & 
Company,  being  insolvent  and  dealing  with  several  customers,  as  to 
each  of  whom  he  had  pledged  the  stocks  carried  for  them,  and  under 
the  understanding  of  the  parties  being  under  obligation  to  each  of  them 
to  redeem  the  stocks  from  the  loan  for  which  they  were  pledged,  this 
obligation  created  a  right  of  demanding  the  pledged  stocks  and  se- 
curities on  the  part  of  each  of  the  customers,  which  put  the  broker  in 
the  debtor  class  and  the  customers  into  the  creditor  class,  so  that  if 
the  broker  used  his  assets  to  carry  out  such  obligation  to  a  particular 
customer,  whereby  the  latter  was  able  to  redeem  his  stock  from  such 
pledge  upon  payment  only  of  the  amount  of  his  indebtedness  to  the 
broker,  with  the  result  that  the  broker  could  not  carry  out  similar  oblir 
gations  to  other  customers  in  like  situation,  a  preference  is  created 
under  section  60  of  the  Bankrupt  Act. 

[The  court  here  examined  the  law  governing  the  relation  of  stock- 
broker and  customer,  and  adopts  the  New  York  rule  that  the  customer 
is  in  effect  a  pledger  of  the  securities  carried  on  his  account.] 


274  RICHARDSON   V.   SHAW.  [CHAP.  IV. 

We  cannot  consent  to  the  contention  of  the  counsel  for  the  peti- 
tioner, that  the  insolvency  of  the  broker  at  once  converts  every  cus- 
tomer, having  the  right  to  demand  pledged  stocks,  into  a  creditor  who 
becomes  a  preferred  creditor  when  the  contract  with  him  is  kept  and 
the  stocks  are  redeemed  and  turned  over  to  him. 

The  Bankrupt  Act  in  section  60a  provides : 

"A  person  shall  be  deemed  to  have  given  a  preference  if,  being 
insolvent,  he  has  within  four  months  before  the  filing  of  the  petition, 
or  after  the  filing  of  the  petition  and  before  the  adjudication,  procured 
or  suffered  a  judgment  to  be  entered  against  himself  in  favor  of  any 
person,  or  made  a  transfer  of  any  of  his  property,  and  the  effect  of  the 
enforcement  of  such  judgment  or  transfer  will  be  to  enable  any  one  of 
his  creditors  to  obtain  a  greater  percentage  of  his  debt  than  any  other 
of  such  creditors  of  the  same  class." 

A  creditor  is  defined  to  include  any  one  who  owns  a  demand  or  claim 
provable  in  bankruptcy.  Sec.  1,  sub.  9,  Bankruptcy  Act  1898,  3 
U.  S.  Comp.  St.  3419.  It  is  essential  therefore,  in  order  to  set 
aside  the  alleged  preference,  that  Shaw  &  Company  at  the  time  of  the 
transfer  should  have  stood  in  the  relation  of  creditor  to  the  bankrupt. 
Of  course,  if  the  New  York  rule  based  upon  Markhara  v.  Jaudou,  41 
N.  Y.  235,  is  correct,  and  the  broker  was  the  pledgee  of  the  customer's 
stock,  there  can  be  no  question  that  in  redeeming  these  stocks  for  the 
purpose  of  satisfying  the  pledge  no  preferential  transfer  under  the 
Bankruptcy  Act  resulted. 

In  our  view  we  think  no  different  result  is  reached,  so  far  as  a  pref- 
erence in  bankruptcy  is  concerned,  if  the  Massachusetts  cases  could 
be  taken  to  lay  down  the  correct  rule  of  the  relations  between  broker 
and  customer. 

The  case  most  relied  upon  as  showing  the  preference  is  Weston  v. 
Jordan,  168  Mass.  401.  It  was  held  in  that  case  that  Wheatland  the 
broker  (Weston  was  his  assignee  in  insolvency)  had  become  a  debtor 
to  the  customer  Jordan,  having  parted  with  the  control  of  the  shares 
and  substituting  none  others  for  them  after  repeated  demands  for  them 
by  the  customer.  And  it  was  held  that  when  the  insolvent  broker  went 
into  the  street  and  bought  that  kind  of  stocks  with  his  own  money  and 
the  customer  took  the  stocks,  knowing  of  such  purchase,  the  transac- 
tion amounted  to  a  preference ;  and  in  course  of  the  discussion  Mr. 
Justice  ALLEN,  referring  to  the  contention  of  counsel  that  the  Massa- 
chusetts rule  should  be  reconsidered  in  view  of  the  rules  adopted  in 
New  York  and  other  States,  said  : 

"The  defendant  seeks  to  have  these  decisions  reconsidered;  but  the 
facts  of  the  present  case  do  not  call  for  such  reconsideration  of  the 
general  doctrine.  Even  if  at  the  outset  Jordan  were  to  be  deemed  a 
pledger,  and  Wheatland  a  pledgee,  of  the  shares,  that  relation  was 
changed  by  what  happened  afterwards.  .  .  .  After  Wheatland  had 
parted  with  the  control  of  the  shares,  and  after  repeated  demands  for 
them  by  Jordan,  and  refusals  by  Wheatland  to  deliver  them,  Jordan 


SECT.  II.]  CLARKE  V.  ROGERS.  '  275 

had  a  valid  ground  of  action  against  Wheatland,  either  for  breach  of 
contract  or  for  a  conversion ;  it  matters  not  which." 

The  facts  in  the  present  case  are  entirely  different  from  those  dis- 
closed in  the  case  just  cited.  In  the  present  case  there  was  no  demand 
for  the  return  of  the  stocks  which  was  refused  by  the  broker ;  but, 
recognizing  the  obligation  of  the  contract,  when  the  stocks  were 
demanded  the  broker  proceeded  to  redeem  them  from  the  pledge 
which  he  had  made  of  them  under  the  right  given  by  the  contract 
between  the  parties,  and  turned  them  over  to  the  customer.  In  such 
case  the  relation  of  debtor  and  creditor  did  not  arise  as  it  might  upon 
the  refusal,  as  in  Weston  v.  Jordan,  to  turn  over  the  stocks  upon 
demand. 

After  an  examination  of  the  Massachusetts  cases,  Judge  LOWELL 
held  in  In  re  Swift,  105  Fed.  493,  while  following  the  Massachusetts 
rule  as  between  broker  and  customer,  that  no  cause  of  action  arose 
until  after  demand  by  the  customer.  And  the  same  view  was  taken  in 
the  same  case  upon  review  in  the  Court  of  Appeals  for  the  First  Circuit 
in  an  opinion  by  Judge  PUTNAM,  112  Fed.  315.  While  both  courts  held 
that  under  the  law,  as  defined  in  the  Massachusetts  cases,  bankruptcy 
excused  demand,  they  held  that  the  customer  did  not  become  a  creditor 
upon  insolvency,  but  only  after  demand  and  refusal  or  its  equivalent. 

How  then  stood  the  parties  at  the  time  of  the  demand  for  the  return 
of  these  shares  of  stock  ?  They  were  held  upon  a  contract,  which  re- 
quired the  broker,  upon  demand,  to  turn  over  the  shares  purchased,  or 
similar  shares,  to  the  customer  upon  payment  of  advances,  interest, 
and  commissions.  These  stocks  were  redeemed  and  turned  over  to 
him ;  as  a  consequence  the  relation  of  debtor  and  creditor  as  between 
the  broker  and  customer  did  not  arise. 

Upon  the  principles  heretofore  discussed,  we  think  the  payment  of 
the  $5,000,  on  June  24,  was  not  preferential  payment  to  a  creditor. 
The  customer  had  demanded  settlement,  the  broker  had  paid  the  $5,000, 
and  on  the  following  day  this  sum  was  taken  into  account  in  settling 
the  account  before  turning  over  to  the  customer  the  stock  belonging 
to  him,  according  to  the  understanding  of  the  parties.1 


CLARKE  v.  ROGERS. 
SUPREME  COURT  OF  THE  UNITED  STATES,  APRIL  16-MAY  5,  1913. 

[Reported  in  228  United  States,  534.] 

MR.  JUSTICE  MCKENNA  delivered  the  opinion  of  the  court. 

Petition  by  appellee  as  trustee  in  bankruptcy  of  the  estate  of  John 
O.  Shaw  to  recover  a  preference. 

The  bankrupt,  John  O.  Shaw,  was,  for  a  long  time  prior  to  the  adju- 
dication in  bankruptcy,  trustee  under  the  will  of  Samuel  Parsons. 

1  The  opinion  is  abbreviated. 


276  CLA.RKE   V.   ROGERS.  [CHAP.  IV. 

Shaw,  being  insolvent,  and  knowing  himself  to  be  insolvent,  was 
discovered  by  the  surety  on  his  bond  as  trustee  under  the  Parsons  will, 
not  to  be  in  the  possession  of  some  of  the  securities  which  formed  a  part 
of  the  trust  estate,  and  which  should  have  been  in  his  possession  as 
trustee.  He  was  being  urged  by  the  surety  to  make  good  this  short- 
age. For  the  purpose  of  doing  so,  he  placed  the  bonds  in  question  in 
a  safe-deposit  box,  taken  and  agreed  on  by  himself  and  the  surety  as 
a  separate  place  of  deposit  for  the  secui'ities  belonging  to  this 
trust. 

The  bankrupt  had  at  the  time  more  than  twenty-five  other  trust 
estates  in  his  charge  as  trustee.  There  was,  in  the  case  of  each,  a  short- 
age for  which  he  was  responsible,  and  he  knew  the  fact  to  be  so.  The 
total  amount  of  those  shortages  exceeded  8350.000. 

It  has  not  been  shown  that  any  of  the  bonds  used  as  above  to  make 
good  the  shortage  in  the  Parsons  trust  estate,  or  that  any  of  the  money 
wherewith  the  bankrupt  purchased  those  bonds,  can  be  identified  as 
belonging  to  any  one  of  the  other  trust  estates  in  the  bankrupt's  charge. 
He  drew  out  and  used  to  purchase  certain  of  the  bonds  a  savings  bank  de- 
posit of  Si, 500  belonging  to  one  of  the  Parsons  trust  funds ;  but  with 
that  exception  the  money  wherewith  the  bonds  were  bought  as  well  as 
the  bonds  themselves  must,  for  the  purpose  of  the  questions  to  be  de- 
cided, be  regarded  as  the  bankrupt's  individual  property  at  the  time 
he  set  them  apart  in  the  manner  stated,  to  be  thereafter  held  as  trust 
property. 

The  question  in  the  case  is,  Do  these  facts  show  a  preference  within 
the  meaning  of  the  Bankruptcy  Law  ? 

Putting  to  one  side  the  identity  of  Shaw  as  an  individual  and  Shaw 
as  the  trustee  of  the  trusts,  there  are  the  elements  of  a  preference.  In 
other  words,  there  is  indebtedness ;  Shaw  is  indebted  to  all  of  the  es- 
tates of  which  he  was  trustee.  He  used  his  individual  property  to  pay 
the  indebtedness  of  the  Parsons  trust,  and  he  thus  gave  that  trust  a 
preference  over  the  others.  It  was  enabled  to  the  extent  of  the  prop- 
erty transferred  to  obtain  a  greater  percentage  of  its  debts  than ,  the 
other  trusts.  "What,  then,  stands  in  the  way  of  setting  the  transfer 
aside?  The  debt  was  not  a  provable  one  in  bankruptcy,  it  is 
contended. 

An  obligation  to  the  trusts  is  not  denied,  but  it  is  an  obligation,  it  is 
asserted,  which  was  represented  entirely  by  his'  bond,  and  had  no 
remedy  but  by  a  suit  on  the  bond.  The  liability  of  Shaw,  it  is  further 
contended,  considered  independently  of  the  bond,  was  in  the  nature 
of  a  pure  tort  liability  which  could  not  be  waived  and  the  remedies  of 
a  contract  availed  of. 

[The  court  here  cited  and  examined  Crawford  v.  Burke,  195  U-  S. 
176;  Tindle  v.  Birkett,  205  U.  S.  183;  Frederic  L.  Grant  Shoe 
Co.  w.  W.  M.  Laird  Co.,  212  U.  S.  445;  Bush  v.  Moore,  133  Mass. 
198,  and  quoted  with  approval  from  the  opinion  in  the  case  deliv- 


SECT.  II.]      DAVIS   V.    HANOVER    SAVINGS   FUND   SOCIETY.  277 

ered  by  the  Circuit  Court  of  Appeals  (183  Fed.  518),  the  following 
passage.] 

"It  is  true  that,  in  the  ordinary  course,  enforcing  the  bond  would 
be  at  the  end  of  the  proceedings,  and  not  at  the  beginning.  Neverthe- 
less, as  the  equitable  rules  which  govern  in  bankruptcy  always  look  to" 
the  end,  and  disregard  the  intervening  details  as  only  steps  to  reach 
the  end,  there  was  in  this  case  a  contract  from  the  beginning  —  that  is, 
the  bond  —  which  was  capable  of  liquidation  on  the  rules  explained  in 
Tindle  v.  Birkett,  205  U.  S.  183.  .  .  .  Aside  from  this  and  independ- 
ently of  the  bond,  we  believe  there  is  an  obligation  resting  on  a 
defaulting  testamentary  trustee  to  restore  the  value  of  the  assets  em- 
bezzled, which  is  of  a  contractual  character." 

Equality  between  creditors  is  necessarily  the  ultimate  aim  of  the 
Bankruptcy  Law,  and  to  obtain  it  we  must  regard  the  essential  nature 
of  transactions,  not  their  forms  or  accidents.  As  we  have  said,  there 
may  be  a  unity  of  the  person  in  the  individual  and  the  trustee,  of  the 
individual  and  the  guardian  ;  we  must  look  beyond  it  to  the  difference 
in  his  capacities  and  the  duties  and  obligations  resulting  from  it. 
These  duties  and  obligations  are  as  distinct  and  insistent  as  though 
exercised  by  different  individuals,  and  have  the  same  legal  consequences. 
The  unity  of  the  person  has,  of  course,  an  effect.  It  constitutes  such 
relationship  between  the  different  capacities  exercised  as  to  impute 
knowledge  of  their  exercise  and  for  what  purpose  exercised.  Bush  v. 
Moore,  133  Mass.  198;  Atlantic  Cotton  Mills  v.  Indian  Orchard  Mills, 
147  Mass.  282;  Rogers  v.  Palmer,  102  U.  S.  263;  Atlantic  Bank  v. 
Merchants'  Bank,  10  Gray,  532,  cited  in  United  States  v.  State  Nat 
Bank,  96  U.  S.  30,  36.1 

Decree  affirmed. 

Mr.  Justice  HOLMES  concurs  in  the  result 


SECTION  II.  (continued), 
(e)  EFFECT  OF  FAILURE  TO  RECORD. 

DAVIS  v.  HANOVER  SAVINGS   FUND   SOCIETY,  ET  AL. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  FOURTH  CIRCUIT, 
NOVEMBER  4,  1913. 

[Reported  in  210  Federal  Reporter,  768.] 

A  corporation  executed  a  mortgage  or  deed  in  trust  of  all  its  prop- 
erty to  secure  the  payment  of  bonds  issued  to  its  treasurer,  its  only 
creditor,  who  was  authorized  to  use  the  bonds  as  he  deemed  best  to 

1  The  opinion  is  abbreviated. 


278         LOESER   V.    SAVINGS   DEPOSIT   BANK   &   TRUST   CO.       [CHAP.  IV. 

reimburse  himself.  He  deposited  them  with  banks  as  collateral  security. 
Neither  the  trustee  nor  the  banks  knew  of  his  failure  to  record  the 
mortgage  which  had  been  delivered  to  him  for  that  purpose  until  a  few 
days  prior  to  the  date  of  its  registration,  when  they  directed  that  it  be 
recorded  at  once,  and  it  was  so  recorded  on  November  6, 1909,  five  years 
after  its  execution.  The  corporation  was  adjudicated  a  bankrupt 
March  13,  1911,  upon  a  petition  filed  March  3,  1910.  Debts  of  ob- 
jecting creditors  were  contracted  subsequent  to  the  execution  of  the 
bonds  and  mortgage  and  to  the  transfer  to  the  banks,  but  prior  to  the 
registration  of  the  mortgage. 

CONNOR,  District  Judge : 

In  Debus  v.  Yates  (D.  C.,  Ky.),  193  Fed.  429,  Judge  Cochran,  in  a 
very  elaborate  and  well  considered  opinion,  held  that,  since  the  Amend- 
ment of  1903,  section  60a,  "the  transfer  was  to  be  judged,  in  deter- 
mining the  question  whether  or  not  it  constituted  a  voidable  preference, 
as  of  the  time  when  it  was  made  and  not  at  the  time  of  its  registration 
and  that,  unless  when  it  was  made,  the  debtor  was  insolvent  and  actu- 
ally intended  a  preference,  and  the  creditor  then  had  reasonable  cause 
to  believe  it  was  so  intended,  it  is  not  voidable." 

Adopting  this  decision  as  a  correct  construction  of  the  section  60a, 
as  amended  by  the  Act  of  February  5,  1903,  there  is  no  basis  for 
the  suggestion  that  the  mortgage  was  a  voidable  preference.  The 
Amendment  of  1910  makes  a  radical  change  in  the  law  in  this  re- 
spect. The  mortgage  in  controversy  here,  however,  was  recorded  on 
November  6,  1909,  and  does  not  come  within  the  provisions  of  that 
amendment.1 


LOESER  v.  SAVINGS   DEPOSIT  BANK  &  TRUST  CO. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  SIXTH  CIRCUIT,  NOVEMBER, 

1906. 

[Reported  in  148  Federal  Reporter,  475.] 

Appeal  from  the  District  Court  of  the  United  States  for  the  Eastern 
Division  of  the  Northern  District  of  Ohio. 

Before  LURTON  and  SEVERENS,  Circuit  Judges,  and  COCHRAN,  Dis- 
trict Judge. 

LURTON,  Circuit  Judge : 

The  question  in  this  case  is  as  to  whether  Mrs.  Chadwick's  chattel 
mortgage  securing  a  past  indebtedness  to  the  Savings  Deposit  and 
Trust  Co.  of  $37,000.00  is  invalid  as  a  preference  under  section  60a  of 
the  Bankrupt  Law  as  amended  February  5,  1903. 

1  Only  a  portion  of  the  opinion  is  printed. 


SECT.  II.]      LOESEll  V.    SAVINGS   DEPOSIT   BANK   <t   TRUST   CO.  279 

This  mortgage  was  made  April  27,  1904.  By  an  agreement  between 
the  parties,  it  was  withheld  from  record  until  November  22,  1904,  on 
which  day  the  mortgagee  took  actual  possession  of  the  mortgaged 
property  and  put  the  mortgage  to  record.  On  December  1,  1904, 
proceedings  in  bankruptcy  were  begun  against  Mrs.  Chadwick  and  in 
due  course  she  was  adjudged  a  bankrupt. 

It  was  conceded  by  the  mortgagee  that  at  the  time  the  chattel 
mortgage  was  executed  Mrs.  Chadwick  was  insolvent,  and  that  J. 
C.  Hill,  president  of  said  bank,  had  reasonable  cause  to  believe  at 
that  time  that  she  was  insolvent  and  that  such  condition  existed  on 
the  22d  day  of  November,  1904.  It  also  appeared  from  the  evidence 
that  the  effect  of  enforcing  such  chattel  mortgage,  if  held  valid,  will 
be  to  enable  said  bank  to  obtain  a  greater  percentage  of  its  debt  than 
any  other  of  the  bankrupt  creditors  of  the  same  class.  The  concession 
brings  this  transfer  squarely  within  the  definition  of  a  voidable  prefer, 
ence ;  provided,  it  was  such  a  transfer  as  under  the  1  aw  of_0hip  was 
"required"  to  be  recorded  within  the  meaning  of  section  60a  of  the 
Bankrupt  Law  of  1898,  as  amended  by  the  Act  of  February  5,  1903. 
District  Judge  TAYLER,  who  heard  this  case  in  the  court  below,  was 
of  opinion,  that  under  the  laws  of  Ohio,  the  State  wherein  the  mort- 
gaged property  was  situated,  a  chattel  mortgage  is  not  "required"  to 
be  recorded  within  the  meaning  of  the  amendment  referred  to,  and 
that  the  preference  related  to  the  date  of  the  actual  execution  of  the 
transfer  and  was,  therefore,  valid  as  a  preference  made  more  than 
four  months  before  the  filing  of  the  petition.  It  must  be  conceded, 
that,  under  the  settled  law  of  Ohio,  this  mortgage  was  valid  without 
recording  as  between  the  parties  and  became  good  when  recorded 
against  all  creditors  who  had  fastened  no  lien  thereon  before,  ques- 
tions of  actual  fraud  in  withholding  it  from  record  out  of  the  way. 
It  must  also  be  conceded,  that  prior  to  the  amendment  of  the  Bank- 
rupt Law  by  the  amending  Act  of  February  5,  1903,  the  preference, 
if  free  from  actual  fraud,  would  relate  to  the  date  of  the  making  and 
delivery  of  the  instrument  creating  it  and,  if  that  date  was  more 
than  four  months  before  the  filing  of  the  petition  for  adjudication  in 
bankruptcy,  the  lien  would  be  good  against  the  trustee.  Humphreys 
v.  Tatman,  198  U.  S.  91,  and  Rogers  v.  Page,  140  Fed.  Rep.  596.  Both 
of  the  cases  last  cited,  arose  under  preferences  given  before  the  Amend- 
ment of  February  5,  1903.  What  has  been  the  effect  of  that  amend- 
ment? This  fact  was  referred  to  by  Mr.  Ray  of  the  House  Judiciary 
Committee,  who  explained  the  amendment  in  question,  when  proposed 
in  Congress,  as  intended  to  prevent  preferences  under  unrecorded  in- 
struments given  more  than  four  months  before  the  filing  of  the  petition. 
Touching  this  he  said : 

"  By  adding  to  'A'  a  clause  which  shall  be  equivalent  to  that  found 
in  section  3  B  (1).  It  seems  that  as  section  60a  now  stands  a  prefer- 
ential mortgage  may  be  given  arid  the  creditor  preferred,  by  withhold- 
ing it  from  record  four  months  be  able  to  dismiss  the  trustee  suit  to 


280          LOESER  V.   SAVINGS   DEPOSIT   BANK   &   TRUST   CO.       [CHAP.  IV. 

recover  the  same  though  the  paper  was  actually  recorded  within  the 
four-months'  period.  See  In  re  Wright  (Ga.),  2  Am.  B.  R.  364,  96 
Fed.  187 ;  In  re  Mersman  (N.  Y.),  7  Am.  B.  R.  46."  Vol.  35,  part  7, 
Cong.  Record,  6943. 

This  section,  in  its  original  form,  was  construed  in  the  cases  of 
Humphrey  v.  Tatman  and  Rogers  v.  Page,  cited  above,  and  in  several 
other  reported  cases  as  avoiding  no  preference  which  originated  under 
an  unrecorded  transfer  made  more  than  four  months  before  the  begin- 
ning of  bankruptcy  proceedings  against  the  maker.  Subsequently  Mr. 
Ray  became  District  Judge  for  the  Northern  District  of  New  York, 
and  in  the  case  styled  In  re  Hunt,  139  Fed.  283,  he  quotes  from  "  Col- 
lier on  Bankruptcy/'  (5th  ed.),  453,  a  statement,  that  the  amendment 
as  offered  added  after  the  word  "required"  the  words  "or  per- 
mitted" and  "that  the  Senate  for  some  reason  struck  out  these 
words."  Judge  RAY,  from  this  history,  held,  that  because  under  the 
laws  of  New  York  an  unrecorded  conveyance  was  good  as  against 
everybody  except  subsequent  purchasers  without  notice,  that  it  was 
not  "required"  to  be  recorded  in  order  to  be  effectual  against  a  bank- 
rupt trustee.  Independently  of  this  legislative  history,  Judge  ARCH- 
BALD,  in  English  v.  Ross,  140  Fed.  630,  and  the  Circuit  Court  of 
Appeals  for  the  Eighth  Circuit,  in  First  National  Bank  v.  Connett, 
142  Fed.  33,  reached  an  opposite  conclusion  and  held  that  a  re- 
cording statute,  which  required  a  conveyance  or  transfer  to  be  re- 
corded to  be  effectual  against  a  certain  class  or  classes  of  persons, 
was  a  law  which  "  required"  the  recording  of  the  transfer  in  question, 
within  the  meaning  of  section  60a  as  amended.  With  this  conclusion 
we  agree.  Among  the  reasons  which  justify  this  interpretation  are 
these : 

(1)  A  preference  which  is  an  act  of  bankruptcy  by  section  3  should 
In  an  harmonious  law  be  voidable  by  the  trustee.  By  that  section  a 
transfer  made  by  one,  "  while  insolvent,"  of  any  portion  of  his  prop- 
erty to  one  or  more  of  his  creditors  "  with  intent  to  prefer  such  credi- 
tors over  his  other  creditors,"  is  made  an  act  of  bankruptcy,  and  a 
petition  may  be  filed  against  such  person  "within  four  months  after 
the  commission  of  such  act."  With  respect  to  the  date  of  the  commis- 
sion of  such  act  of  bankruptcy,  subdivision  (1)  of  the  same  section 
provides,  that  the  date  from  which  the  four  months  begins  to  run  shall 
be  "  the  date  of  the  recording  or  registering  of  the  transfer  or  assign- 
ment when  the  act  consists  in  having  made  a  transfer  of  any  of  his 
property  "  .  .  .  "  for  the  purpose  of  giving  a  preference  as  hereinbefore 
provided,"  .  .  .  "  if  by  law  such  recording  or  registering  is  required 
or  permitted,  or,  if  it  is  not,  from  the  date  when  the  beneficiary  takes 
notorious,  exclusive  or  continuous  possession  of  the  property  unless 
the  petitioning  creditors  have  received  actual  notice  of  such  transfer 
or  assignment."  By  section  60a,  a  definition  of  a  "  preference  "  is 
given  which  under  section  3  would  constitute  an  act  of  bankruptcy 
and  by  section  60b,  a  "preference"  so  defined  is  made  voidable  by 


SECT.  II.]      LOESER   V.    SAVINGS   DEPOSIT   BANK   &   TRUST   CO.          281 

the  trustee.  But  as  we  have  seen  heretofore,  sections  60a  and  b 
did  not  make  a  preference  voidable  by  the  trustee  unless  the  pref- 
erence, whether  under  a  recorded  or  unrecorded  instrument,  was 
given  within  four  months  prior  to  the  filing  of  a  petition  in  bank- 
ruptcy. Thus  a  ' '  preference  "  under  section  3,  as  defined  by  section 
60a,  might  constitute  an  act  of  bankruptcy  and  justify  an  adjudi- 
cation if  given  by  an  unrecorded  instrument  more  than  four  months 
prior  to  bankruptcy  and  the  preference  itself  be  enforced  as  a  perfectly 
valid  act.  The  plain  purpose  of  the  amendment  of  section  60a  was  to 
bring  it  into  harmony  with  section  3,  by  making  the  same  period  of 
time  the  test  as  to  whether  a  preference  may  be  avoided  by  the  trustee 
under  the  former,  or  may  constitute  an  act  of  bankruptcy  under  the 
latter.  The  construction  given  to  section  3  should  be  carried  forward 
and  given  to  section  60a  as  amended,  thus  bringing  them  into  consist- 
ent relations.  "  The  two,"  said  Judge  ARCHBALD,  in  English  v.  Ross> 
cited  above,  "are  intimately  related,  the  one  in  this  particular  being  the 
basis  of  and  dominating  the  other,  and  it  is  the  failure  to  realize  this 
and  to  draw  them  together  as  they  should  be  that  is  responsible  for 
any  misapprehension.  What  is  thus  '  required '  in  the  way  of  record- 
ing in  the  one  is  also  *  required '  as  a  conveyance  in  the  other  and  for 
the  same  purpose." 

(2)  The  evil  to  be  corrected  was  that  of  secret  preferences,  given  by 
withholding  from  record  instruments  which  by  the  whole  policy  of  re- 
cording statutes  should  be  recorded. 

This  evil  was  pointed  out  by  the  author  of  the  amendatory  Act  of 
1903  and  the  object  of  the  amendment  of  60a  was  stated  to  be  the 
remedying  of  this  evil.  The  law  as  it  stood  encouraged  such  secret 
liens  and  preferences,  for  if  they  could  be  concealed  for  four  months, 
though  acts  of  bankruptcy,  they  were  not  voidable  by  the  trustee.  If 
we  say,  that  unless  the  law  of  the  State  where  the  transfer  is  made 
makes  void  all  such  transfers  as  to  all  the  world,  that  it  is  not  a  law 
which  "  requires"  recording,  the  evil  will  continue  and  judges  will  con- 
tinue to  bewail  the  iniquity  of  a  law  which  makes  such  a  secret  trans- 
fer an  act  of  bankruptcy  and  yet  holds  the  preference  valid  against  the 
bankrupt's  estate  because  made  more  than  four  months  before  starting 
bankrupt  proceedings  against  the  maker.  See  the  lament  of  Judge 
RAY,  In  re  Hunt,  139  Fed.  286-287. 

(3)  Some  effect  should  be  given  to  the  amendment  of  section  60a  if 
the  language  of  the  provision  will  permit.     If  "required"  be  construed 
as  applying  only  to  a  law  which  makes  every  such  transfer  absolutely 
void  as  to  all  persons,  the  amendment  will  be  of  no  effect,  for  no  record- 
ing statute,  of  which  we  have  any  knowledge,  makes  void  transfers  or 
conveyances  as  between  the  parties  and  all  of  them  give  effect  to  such 
instruments  as  against  some  classes  of  persons  having  actual  notice. 
The  amendment  would  be  idle  and  the  evil  sought  to  be  remedied 
would  flourish  as  before  and  the  legislative  purpose  be  frustrated. 

(4)  In  view  of  all  of  the  foregoing  considerations  we  reach  the  conclu- 


282         LOESER   V.   SAVINGS   DEPOSIT   BANK   &   TRUST   CO.       [CHAP.  IV. 

sion  that  the  word  "  required,"  as  used  in  the  amendment,  refers  to  the 
character  of  the  instrument  giving  the  preference  or  making  the  trans- 
fer, without  reference  to  the  fact  that  as  to  certain  persons  or  classes 
'of  persons  it  may  be  good  or  bad  according  to  circumstances.  If  to  be 
valid  against  certain  classes  of  persons,  the  law  of  the  State  "  requires" 
the  constructive  notice  of  registration,  it  is  a  transfer  which  under  the 
amendment  is  "required  "  to  be  recorded.  This  takes  account  of  the 
purpose  and  policy  of  recording  acts  ;  remedies  the  evil  which  flourished 
under  the  law  before  the  amendment ;  gives  effect  to  the  plain  purpose 
of  Congress;  and  gives  some  effect  and  force  to  a  provision  which 
would  otherwise  be  meaningless,  and  brings  section  3  and  60a  and  60b 
into  harmony  of  purpose  and  meaning. 

(5)  We  do  not  ignore  the  argument,  that  in  section  3  the  word  "re- 
quired "  is  followed  by  the  words  ' '  or  permitted,"  and  that  the  latter 
words  are  omitted  from  the  amendment,  and  that  the  words  "  or  per- 
mitted "  were  in  the  Act  as  introduced  by  the  author  of  the  bill  and  re- 
tained in  the  amendment  as  it  passed  the  House  but  was  dropped  in 
the  Senate. 

It  is  a  fact  of  which  we  may  take  notice,  that  it  is  common  to 
recording  statutes  to  set  out  a  list  of  contracts,  conveyances,  and 
transfers  which  may  be  registered,  or  an  " entitled"  or  "permitted" 
registration.  But  if  an  instrument  is  not  "entitled"  or  "permitted" 
by  law  to  be  recorded,  its  record  is  of  no  effect  as  constructive  notice. 
The  effect  of  recording  statutes  is  limited  to  such  instruments  as  the 
statute  permits  record  of.  Burck  v.  Taylor,  152  U.  S.  634;  Lynch  t». 
Murphy,  161  U.  S.  247;  Blake  v.  Graham,  6  Ohio  St.  580;  24  Ency. 
of  Law,  p.  142,  and  cases  cited.  The  Ohio  statute  concerning  the  re- 
cording of  chattel  mortgages  does  not  require  that  such  mortgages  shall 
be  recorded  in  order  to  be  valid  as  against  the  parties  or  purchasers 
with  notice.  Only  creditors  and  purchasers  without  notice  can  ignore 
an  unrecorded  chattel  mortgage,  and  they  can  not  do  so  if  there  imme- 
diately followed  a  delivery  and  notorious  change  of  possession.  Yet 
the  mortgagor  or  mortgagee  is  entitled  or  ' '  permitted  "  to  record  the 
instrument,  though  not  essential  to  its  validity  as  against  certain 
classes  of  persons. 

We  conclude  from  the  general  purpose  and  policy  of  recording  stat- 
utes, that  the  words  "or  permitted"  are  of  no  vital  signification  in 
section  3.  If  the  instrument  giving  the  preference  is  one  which  is 
"permitted"  to  be  recorded  in  order  to  give  it  validity  as  against 
certain  classes  of  persons,  though  perfectly  valid  without  record  as  to 
other  classes,  it  is  an  instrument  "required"  to  be  recorded  within 
the  meaning  of  the  word  as  there  used.  The  words  "required"  and 
"  permitted"  in  the  connection  used  are  of  synonymous  legal  meaning. 
The  dropping  of  the  words  "  or  permitted  "  by  the  Senate  is,  therefore, 
of  vital  signification  if  we  are  right  in  regarding  section  3  and  section 
60a  as  closely  connected  provisions.  It  is  only  in  extremely  doubtful 
matters  of  interpretation,  that  the  legislative  history  of  an  act  of 


SECT.  II.]  IN   RE   GEORGE   M.    HILL   COMPANY.  283 

Congress  becomes  important.  If  the  word  "  required,"  as  used  in  sec- 
tions 3  and  60a,  is  used  as  referring  to  the  character  of  the  instrument 
giving  the  preference  and  not  as  to  the  persons  as  between  whom  it 
may  be  valid  without  recording  or  the  persons  as  to  whom  it  is  void 
for  failure  to  record,  the  words  "  or  permitted  "  in  section  3  were  sur- 
plusage and  the  Senate  might  well  omit  them  from  the  amendment,  the 
plain  purpose  being  to  tie  the  two  provisions  together.  Why  they  were 
omitted  from  the  bill  as  it  finally  passed  we  can  only  conjecture.  If 
they  had  been  retained,  no  one  would  question  that  the  amendment 
made  the  preference,  constituting  an  act  of  bankruptcy  by  section  3, 
voidable  by  the  trustee  under  section  60a  and  b.  To  say  that  this  plain 
purpose  has  failed  because  "or  permitted"  was  inserted  by  one  House 
and  stricken  out  by  the  other,  would  be  to  make  nothing  of  the  amend- 
ment. We  should  so  construe  the  Act  as  to  give  it  vitality  if  the  words 
of  the  Act  will  permit. 

Under  section  4150  Ohio  Statutes,  a  mortgage  of  chattels,  not  fol- 
lowed by  immediate  delivery  and  no  actual  and  notorious  change  of 
possession,  is  "required"  to  be  recorded.  Otherwise  it  is  invalid  as 
to  some  persons  and  valid  as  to  others.  That  such  a  mortgage  is 
' '  required  "  by  the  law  of  Ohio  to  be  recorded  within  the  meaning  of 
section  60a  as  amended,  we  have  no  doubt. 

The  decree  of  the  court  below  must  be  reversed.1 


SECTION   II.  (continued), 
•(f)  FROM  WHOM  A  PKEFERENCE  MAY  BE  KECOVERBD. 

IN  RE  GEORGE  M.   HILL  COMPANY. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  SEVENTH   CIRCUIT,  APRIL  12, 

1904. 

[Reported  in  130  Federal  Reporter,  315.] 

The  bankrupt  had  for  a  long  time  been  a  customer  of  the  First  Na- 
tional Bank  of  Chicago.  Shortly  before  the  bankruptcy  and  when  the 
bank  was  aware  of  its  financial  condition  the  bankrupt  paid  to  the  bank 
certain  notes  previously  made  by  the  bankrupt  payable  to  third  persons 
who  had  discounted  the  notes  with  the  bank. 

JENKINS,  Circuit  Judge : 

Second.  It  is  insisted  by  the  appellant  that  payment  by  the  bank- 
rupt of  notes  given  by  it  to  third  parties  and  discounted  by  the  bank 

1  The  opinion  is  slightly  abbreviated.  In  accord  with  the  decision  are  Re 
Beckhaus,  177  Fed.  141  (C.  C.  A.  111.);  Mattley  v.  Giesler,  187  Fed.  970  (C.  C.  A. 
Neb.);  Kagan  v.  Donovan,  189  Fed.  138  (D.  C.  Ohio);  Re  Donnelly,  193  Fed.  754 
(D.  C.  Ohio) ;  Carey  v.  Donohue,  209  Fed.  328  (C.  C.  A.  Ohio;  Keal  Estate). 


284  IN  RE  GEORGE  M.  HILL  COMPANY.       [CHAP.  IV. 

were,  under  the  law,  preferential  payments  to  those  for  whom  the 
bank  discounted  the  notes,  and  were  not  preferential  payments  to  the 
bank.  We  are  not  able  to  concur  in  this  contention.  The  fact  that  the 
bank  did  not  enter  these  notes  in  its  loan  account  with  the  bankrupt, 
but  in  the  account  with  the  parties  for  whom  they  were  discounted,  is 
of  no  moment.  The  real  question  is,  what  was  the  true  nature  of  the 
transaction?  Was  payment  under  the  law  preferential  to  the  bank  re- 
ceiving payment?  The  title  of  the  bank  to  these  notes  was  absolute. 
The  debt  thereby  evidenced  was  a  debt  owing  by  the  bankrupt  to  the 
bank.  True,  the  original  payees  of  the  notes  were  liable  to  the  bank 
upon  their  indorsements  of  the  notes,  contingent  upon  their  dishonor 
by  the  maker  and  upon  due  notice  of  such  dishonor.  True  that,  in  the 
absence  of  a  Bankruptcy  Law,  payment  of  the  notes  by  the  maker  would 
inure  to  the  benefit  of  the  indorsers,  relieving  them  from  such  contin- 
gent liability.  True,  also,  that  the  debt  of  the  bankrupt  expressed  by 
the  notes  would  become  a  debt  to  the  indorsers  if  and  when,  in  dis- 
charge of  their  liability  as  indorsers,  they  should  repossess  themselves 
of  the  notes.  But  it  was  the  bank,  not  the  indorsers,  who  received  the 
preferential  payment.  The  release  of  the  indorsers  from  contingent 
liability,  if  such  release  was  effected  by  such  payment,  was  an  in- 
cident not  affecting  the  penalty  imposed  by  the  Bankruptcy  Act  for 
the  receipt,  however  innocent,  of  a  preferential  payment.  Within 
the  definitions  of  the  Bankruptcy  Act  the  indorser  has  been  held  to 
be  a  creditor  of  the  bankrupt,  while  his  liability  as  indorser  is  con- 
tingent, so  as  to  charge  him  with  preferential  payment  made  to  the 
holder  of  the  note.  Swarts  v.  Siegel,  117  Fed.  13.  But  none  the 
less  is  the  owner  of  the  note  likewise  subjected  to  the  penalties 
of  the  act  for  receipt  of  such  preferential  payment.  Swarts  v.  Fourth 
National  Bank  of  St.  Louis,  117  Fed.  1.  In  these  cases  both  the 
bank  and  the  indorsers  were  held  chargeable  for  receipt  of  prefer- 
ential payment  by  reason  of  the  amount  paid  to  the  bank,  which 
payment  must  be  refunded  before  either  party  could  prove  an  inde- 
pendent claim  against  the  bankrupt  with  which  the  other  party  was  in 
no  wise  connected.  This  would  not  result,  as  counsel  supposed,  that 
in  such  case  the  insolvent  estate  would  recover  twice  what  it  lost. 
Only  the  amount  by  which  the  assets  of  the  estate  had  been  depleted 
must  be  returned. 

It  is  further  said  that  the  bank,  refusing  to  receive  payment  of  the 
notes,  would  thereby  discharge  the  indorser.  The  contention  is  not 
free  from  difficulty,  and  if  that  result  would  follow  the  enforcement  of 
the  act  would  be  productive  of  injustice.  But  we  think  the  matter 
has  been  ruled  by  the  Supreme  Court  in  Bartholow  v.  Bean,  18 
Wall.  635,  a  case  arising  under  the  former  Bankruptcy  Act  (Act 
March  2,  1867,  c.  176,  14  Stat.  534,  536).  The  question  was  pre- 
sented in  that  case,  and  Mr.  Justice  MILLER,  delivering  the  opinion 
of  the  court,  said  : 

"  It  is  very  obvious  that  the  statute  intended,  in  pursuit  of  its  policy 


SECT.  II.]  DUNCAN  V.  LANDIS.  285 

of  equal  distribution,  to  exclude  both  the  holder  of  the  note  and  the 
surety  or  indorser  from  the  right  to  receive  payment  from  the  insol- 
vent bankrupt.  It  is  forbidden.  It  is  called  a  fraud  vipon  the  statute 
in  one  place  and  an  evasion  of  it  in  another.  It  was  made  by  the 
statute  equally  the  duty  of  the  holder  of  the  note  and  of  the  indorser 
to  refuse  to  receive  such  a  payment.  Under  these  circumstances, 
whatever  might  have  been  the  right  of  the  indorser,  in  the  absence  of 
the  Bankrupt  Law,  to  set  up  a  tender  by  the  debtor  and  a  refusal  of 
the  note  holder  to  receive  payment,  as  a  defense  to  a  suit  against  him 
as  indorser,  no  court  of  law  or  equity  could  sustain  such  a  defense, 
while  that  law  furnishes  the  paramount  rule  of  conduct  for  all  parties 
to  the  transaction  ;  and  when  in  obeying  the  mandates  of  that  law  the 
indorser  is  placed  in  no  worse  position  than  he  was  before,  while  by 
receiving  the  money  the  holder  of  the  note  makes  himself  liable  to  a 
judgment  for  the  amount  in  favor  of  the  bankrupt's  assignee,  and 
loses  his  right  to  recover,  either  of  the  indorser  or  of  the  bankrupt's 
estate." 

Within  the  rule  in  Pirie  v.  Chicago  Title  &  Trust  Co.,  182  U.  S.  438, 
and  In  re  Fort  Wayne  Electric  Corp.,  99  Fed.  400,  we  have  no  doubt 
that  the  amount  of  these  notes  thus  paid  should  be  refunded  as  a  con- 
dition that  the  bank  prove  its  other  claim.1 


SECTION   II.  (continued), 
(g)  SUFFERED  OR  PERMITTED. 

DUNCAN  v.  LANDIS. 

CIRCUIT  COURT  OF  APPEALS   FOR  THE  THIRD   CIRCUIT,  FEBRUARY  7, 

1901. 

[Reported  in  106  Federal  Reporter,  839.] 

Before  DALLAS  and  GRAY,  Circuit  Judges,  and  BRADFORD,  District 
Judge. 

GRAY,  Circuit  Judge.  In  the  court  below  an  issue  was  tried  by  a 
jury  to  determine  whether  Sallie  E.  Duncan,  the  appellant,  who  is  one 
of  the  plaintiffs  in  error,  had  committed  a  certain  act  of  bankruptcy 
charged  against  her. 

Sallie  E.  Duncan,  the  appellant,  did  business  in  the  city  of  Williams- 
port,  Pa.,  under  the  name  of  the  Duncan  Department  Store ;  her  hus- 
band, James  M.  Duncan,  being  her  general  agent  and  business  manager. 

1  A  portion  only  of  the  opinion  is  printed. 


286  DUNCAN   V.    LANDIS.  [CHAP.  IV. 

In  April,  1896,  certain  promissory  notes  in  favor  of  Theodore  H. 
Gehty,  Gandor  &  Munson,  and  the  first  National  Bank  of  Williamsport, 
with  warrants  of  attorney  to  confess  judgment,  were  executed  and  given 
by  Sallie  E.  Duncan  to  the  parties  named.  On  December  31,  1898,  by 
virtue  of  the  said  warrants,  judgments  were  entered  in  the  Court  of 
Common  Pleas  of  Lycoming  County  against  the  said  Sallie  E.  Duncan 
for  sums  aggregating  $8,228.67.  Executions  were  issued  thereon,  and 
levy  made  by  the  sheriff  upon  the  property  of  the  defendant.  Sallie  E. 
Duncan  was  also  indebted  to  other  creditors  in  the  sum  of  $7,300. 
These  other  creditors,  or  some  of  them,  filed  a  petition  in  the  court 
below  on  January  7,  1899,  praying  that  the  said  Sallie  E.  Duncan 
should  be  adjudged  a  bankrupt,  upon  the  ground  that  within  four 
months  next  preceding  the  date  of  their  petition  she  had  committed  an 
act  of  bankruptcy,  in  that  she  did  on  the  31st  day  of  December,  1898, 
suffer  and  permit,  while  insolvent,  certain  of  her  creditors  to  obtain 
a  preference  through  legal  proceedings,  and  had  not,  within  five  days 
before  the  time  fixed  by  the  sheriff  for  the  sale  of  her  property  levied 
upon  by  him,  vacated  and  discharged  such  preference. 

The  position  taken  by  the  District  Court  in  its  instruction  to  the  jury 
was  that  the  mere  action  of  the  plaintiffs  in  said  judgment  in  entering 
the  same  and  issuing  executions  thereon  upon  the  authority  of  warrants 
of  attorney  given  by  Sallie  E.  Duncan  more  than  two  and  a  half  3*ears 
before,  and  before  the  passage  of  the  bankrupt  act,  constituted  a  suffer- 
ing or  permitting  by  her  of  the  obtaining  of  a  preference  by  such  cred- 
itors at  the  time  of  such  entry  and  levying  of  execution,  within  the 
meaning  of  the  bankrupt  act,  because  she  did  not  within  "five  days," 
etc.,  vacate  or  discharge  such  preference ;  and  this  though,  as  is 
assumed,  the  said  Sallie  E.  Duncan,  not  only  did  no  act  to  initiate  or 
facilitate  the  proceedings  of  the  creditors  subsequent  to  the  giving  of 
the  judgment  notes,  but  could  not  have  controlled,  hindered,  or  delaj-ed 
such  proceedings.  We  do  not  agree  with  the  learned  judge  in  this 
construction  of  the  bankrupt  act.  If  sanctioned,  it  perverts  or  ignores 
the  common  and  ordinary  meaning  of  English  words,  and  deprives  the 
debtor  of  the  protection  which  those  words,  in  their  common,  eveiyday 
signification,  would  give,  and,  we  must  assume,  were  intended  to  give. 
Section  3  of  the  act  of  1898  deals  with  and  describes  acts  of  bankruptc}'. 
It  is  to  be  observed  that  the  section  expressly  states  that  it  deals  with 
and  concerns  acts  of  the  debtor.  Unquestionably,  clauses  1,  2,  4,  and 
5  require  a  voluntary  act.  The  question,  then,  is  whether  clause  3 
does  not  require  the  same.  It  certainly  does,  unless  it  is  an  exception 
to  the  general  scheme  of  the  section.  The  grammatical  structure  of  the 
section  is  that  of  a  single  sentence,  in  which  the  numbered  clauses  all 
depend  upon  and  relate  to  the  opening  clause,  viz.,  "  acts  of  bankruptcy 
by  a  person  shall  consist  of  his  having  "  done  certain  things.  An  act 
signifies  something  done  voluntarily  by  a  person.  An  act  is  the  result 
of  an  exercise  of  the  will.  Black's  Law  Dictionary  says :  — 

"  In  a  more  technical  sense,  it  means  something  done  voluntarily  by 


SECT.  II.]  DUNCAN   V.   LANDIS.  287 

a  person,  and  of  such  a  nature  that  certain  legal  consequences  attach 
to  it.  Thus,  a  grantor  acknowledges  a  conveyance  to  be  his  '  act  and 
deed,'  the  terras  being  synonj'mous." 

The  act  with  which  we  are  here  concerned  is  the  debtor's  having 
suffered  or  permitted,  while  insolvent,  a  creditor  to  obtain  a  preference, 
etc.  Both  the  words,  "suffer"  and  "permit,"  while  they  do  not 
necessarily  connote  strong  affirmative  action,  do  involve  such  an  exer- 
cise of  the  will  as  effects  results.  The  "suffering  or  permitting"  a 
creditor  to  obtain  a  preference,  within  the  meaning  of  clause  3,  may 
consist  of  connivance  between  the  debtor  and  creditor.  But  in  any 
event  there  must  be  some  act  of  the  will  on  the  part  of  the  debtor, 
whether  by  way  of  active  procurance  or  voluntary  acquiescence. 
Slight  evidence  of  an  affirmative  character  might  suffice  to  establish 
such  connivance  or  acquiescence,  but  there  must  be  some.  Noscitur 
a  sociis  is  an  established  rule  in  the  interpretation  of  statutes.  "  As- 
sociated words  are  understood  to  be  used  in  their  cognate  sense." 
There  can  be  no  doubt  that  the  word  "  suffer  "  is  here  a  synonym  of 
"  permit."  It  is  the  active  and  transitive  verb,  and  not  the  intransi- 
tive. Its  meaning  as  here  used  is  that  given  by  all  lexicographers, 
Webster  defining  it  thus  :  "  (4)  To  allow  ;  to'  permit ;  not  to  forbid  or 
hinder ;  to  tolerate.  '  I  suffer  them  to  enter  and  possess.'  Milton." 
Worcester  gives  as  one  of  the  meanings:  "(3)  To  allow;  to  admit; 
to  permit.  '  God  is  faithful,  who  will  not  suffer  you  to  be  tempted 
above  that  }*e  are  able.'  I  Cor.  x.  13."  The  Century  gives  as  one 
meaning  of  the  word  :  "To  refrain  from  hindering;  allow;  permit; 
tolerate.  '  Suffer  the  little  children  to  come  unto  me,  and  forbid  them 
not.'  Mark,  x.  14."  There  can  be  no  doubt,  then,  that  "  suffer"  or 
"  permit,"  as  used  in  this  section,  denotes  a  voluntaiy  act  of  the  debtor. 
They  do  not  denote  or  describe  acts  of  the  creditor.  The  debtor  must 
by  this  act  consciously  and  voluntarily  in  some  degree  co-operate  with 
the  creditor  in  "obtaining"  the  preference.  He  cannot  suffer  or  per- 
mit what  he  cannot  hinder.  A  preference  obtained  under  such  circum- 
stances is  not  his  act,  and  the  consequence  of  bankruptcy,  as  denounced 
in  this  section,  attaches  only  to  his  act.  In  the  case  before  us,  Sail  if 
E.  Duncan,  the  debtor,  undoubtedly,  to  use  the  language  of  the  district 
court  for  the  Western  district  of  Wisconsin  in  lie  Nelson,  98  Fed.  76, 
"had  a  right  to  give  a  note,  with  warrant  of  attorney,  so  long  before 
the  bankrupt  law  was  passed  ;  and,  having  given  it  upon  good  consid- 
eration, it  was  not  in  [her]  power  to  prevent  the  entry  of  a  judgment 
against  [her].  What  was  not  in  [her]  power  to  prevent,  [she]  could 
hardly  be  said  to  have  suffered  or  procured." 

It  seems  to  us  that  the  learned  judge  in  the  court  below,  in  the 
instruction  to  the  jury  above  quoted,  has  entirely  failed  to  give  force 
and  effect  to  the  plain  English  words  of  section  3  of  the  bankrupt  act 
just  commented  on.  He  in  fact  makes  the  act  of  bankruptcy  consist 
entirely  of  the  debtor  not  vacating  or  discharging  a  preference,  however 
obtained,  whereas  in  this  third  clause  of  the  third  section  the  act  of 


288  DUNCAN   V.   LANDIS.  [CHAP.  IV. 

bankruptcy  is  made  to  consist  of  the  voluntary  act  connoted  by  "  suffer  " 
or  "  permit,"  as  already  explained,  coupled  with  the  failure  of  the 
debtor  to  vacate  or  discharge  within  five  days,  etc.,  the  preference 
thus  suffered  or  permitted ;  the  plain  and  obvious  meaning  of  this 
clause  being  that,  even  though  the  debtor  has  suffered  or  permitted  a 
preference  to  be  obtained,  it  still  will  not  be  considered  an  act  of  bank- 
ruptcy, if  within  the  five  days,  etc.,  he  "  vacates  or  discharges  "  the  same. 
In  making  this  contention  that  the  failure  of  the  debtor  to  vacate  or  dis- 
charge a  preference,  however  obtained,  constitutes  an  act  of  bankruptcy, 
the  appellees  seem  to  admit  that  the  failure  spoken  of  in  the  act  means 
omitting  to  do  something  which  the  debtor  was  able  to  do ;  for  when  it 
is  pointed  out  that  a  judgment  from  which  a  preference  results  has 
been  obtained  upon  a  valid  cause  of  action,  that  there  was  no  legal 
defence,  that  it  was  regularl}7  entered  and  no  exception  was  possible  to 
its  record,  and  that  the  debtor  was  not  able  to  discharge  it  by  payment, 
the  reply  is  made,  not  that  it  is  a  matter  of  no  consequence  whether 
he  was  able  to  do  any  of  these  things  or  not,  but  another  thing,  which 
he  unquestionably  is  able  to  accomplish,  is  mentioned,  viz.  voluntary 
bankruptcy.  This  repty  is  made  upon  the  authority  of  several  cases  in 
the  district  courts,  one  of  them  stating  the  matter  thus :  — 

"  If  neither  of  these  weapons  is  available,  he  has  still  at  command 
one  sufficient  weapon,  of  which  he  cannot  be  deprived:  he  can  apply 
promptly  to  the  Court  of  Bankruptcy,  and  ask  that  his  propert}1  shall  be 
ratably  divided  among  his  creditors.  If  he  fails  to  move,  his  inaction 
is  properly  regarded  as  a  confession  that  he  is  hopelessly  insolvent, 
and  as  conclusive  proof  that  he  consents  to  the  preference  that  he  has 
declined  to  strike  down." 

It  may  be  remarked  in  passing  that  in  the  case  of  a  corporation  the 
"  weapon  "  of  voluntary  bankruptcy  is  not  available. 

There  is  in  the  language  above  quoted  the  implication  of  a  further, 
somewhat  inconsistent,  admission  that,  in  view  of  the  natural  and 
ordinary  meaning  of  the  words  "  suffer  or  permit,"  there  was  a  necessity 
to  seek  for  some  evidence  of  the  exercise  of  the  debtor's  will ;  and  this, 
it  is  asserted,  is  found  in  the  debtor's  failure  to  voluntarily  ask  to  be 
declared  a  bankrupt,  in  order  to  vacate  or  discharge  the  preference 
obtained,  in  cases  where  no  other  way  of  discharging  such  preference 
is  open  to  him.  If  the  element  of  the  debtor's  will  be  necessar}'  to  the 
"  vacating  or  discharging "  of  the  preference,  it  is  hard  to  see  why  it 
should  be  taken  away  from  the  words  "  suffer  or  permit,"  as  used  in  the 
former  part  of  the  clause  under  consideration.  It  would  be  more  con- 
sistent to  eliminate  it  in  both  cases.  The  construction  of  clause  3, 
according  to  the  contention  of  the  appellees,  would  then  be  that  the 
bankruptcy  of  the  debtor  has  no  relation  to  his  act,  but  depends  alone 
upon  the  result  and  effect  of  the  creditor's  act  in  obtaining  a  preference, 
and  likewise  upon  the  result  or  effect  of  the  preference  not  having  been 
discharged  by  the  debtor,  irrespective  of  his  ability  to  so  discharge  the 
Bame.  But,  as  already  explained,  the  appellees  admit  the  necessity  oi 


SECT.  II.]  DUNCAN   V.   LANDIS.  289 

importing  the  will  of  the  debtor  into  the  failure  to  discharge  or  vacate, 
by  the  suggestion  that,  if  there  are  no  other  means  to  legally  vacate  or 
discharge  the  preference,  still  it  is  open  to  him  to  exercise  his  volition 
to  become  a  voluntary  bankrupt.  As  we  cannot  hold  the  debtor  as  for 
a  duty  to  "  vacate  or  discharge,"  where  he  has  no  ability  to  do  either,  so 
as  to  avoid  the  consequence  of  bankruptcy,  no  more  can  we  hold  that 
he  "  suffered  or  permitted  "  the  obtaining  of  a  preference  which  he 
could  not  legally  have  hindered  or  prevented.  In  its  last  analysis,  the 
contention  of  the  appellees,  and  of  those  decisions  which  support  their 
contention,  is  that  the  failure  of  the  debtor  to  promptly  apply  to  the 
court  to  be  declared  a  voluntary  bankrupt,  and  so  effect  an  equal  dis- 
tribution of  his  property  among  his  creditors,  is  conclusive  evidence  of 
his  having  "suffered  or  permitted"  the  obtaining  of  a  preference 
referred  to  in  the  act,  no  matter  how  impossible  legal  resistance  on  his 
part  to  such  preference  ma}'  have  been,  and  no  matter  how  incapable 
he  may  have  been  to  "  vacate  or  discharge  "  the  preference  so  obtained, 
otherwise  than  by  his  voluntary  bankruptcy.  This  seems  to  us  an 
unwarranted,  as  well  as  a  harsh,  interpretation  of  the  section  under 
consideration,  justified  neither  by  the  language  employed  nor  the  scope 
or  intent  of  the  act  itself,  as  gathered  from  its  consideration  as  a  whole. 
It  is  a  begging  of  the  question  of  bankruptcy,  inasmuch  as  it  requires 
that  a  preference  once  obtained  by  a  creditor,  even  in  invitum  as  to  the 
debtor,  should  fix  the  status  of  such  debtor  as  a  bankrupt,  either  by 
the  involuntary  or  b}'  a  so-called  voluntary  proceeding.  We  do  not 
think  it  could  have  been  meant  in  this  act,  any  more  than  in  the  act  of 
1867,  to  put  a  compulsion  upon  the  debtor  to  apply  to  be  declared  a 
bankrupt.  The  language  of  the  Supreme  Court  in  Wilson  v.  Bank,  17 
Wall.  473,  21  L.  Ed.  723,  as  to  this  proposition,  is  as  applicable  to  the 
present  act  as  it  was  to  the  bankrupt  act  of  1867.  It  is  true  that  in 
the  act  of  1898  and  in  the  clause  under  consideration  it  was  expressly 
provided  that  even  though  a  preference  has  been  "  suffered  or  per- 
mitted," it  shall  not  be  an  act  of  bankruptcy,  if  the  debtor  vacates  or 
discharges  the  same  within  a  certain  time,  and  that  there  is  no  express 
provision  of  this  kind  in  the  act  of  1867.  But  neither  in  the  existing 
act  nor  in  the  act  of  1867  is  there  any  express  provision  making  it  the 
legal  duty  of  the  insolvent,  when  sued  by  one  creditor  in  a  proceeding 
likely  to  end  in  a  judgment  and  seizure  of  property,  to  file  himself  a 
petition  in  bankruptcy ;  nor  is  this  duty  to  be  inferred  from  the 
scope  of  the  act  or  the  spirit  of  the  law,  nor  is  it  essential  to  its  suc- 
cessful operation  in  the  one  case  more  than  in  the  other.  Mr.  Justice 
Miller,  in  the  case  of  Wilson  v.  Bank,  above  referred  to,  in  delivering 
the  opinion  of  the  court,  says  upon  this  point:  — 

<k  We  have  already  said  that  there  is  no  moral  obligation  on  the  part 
of  the  insolvent  to  do  this,  unless  the  statute  requires  it,  and  then  only  be- 
cause it  is  a  duty  imposed  by  the  law.  It  is  equally  clear  that  there  is 
no  such  duty  imposed  by  that  act  in  express  terms.  ...  As  before 
remarked,  the  voluntary  clause  is  wholly  voluntary.  No  intimation  is 


290  DUNCAN   V.   LANDIS.  [CHAP.  IV. 

given  that  the  bankrupt  must  file  a  petition  under  any  circumstances. 
While  his  right  to  do  so  is  without  any  other  limit  than  his  own  sworn 
averment  that  he  is  unable  to  pay  all  his  debts,  there  is  not  a  word 
from  which  we  can  infer  any  legal  obligation  on  him  to  do  so.  Such 
an  obligation  would  take  from  the  right  the  character  of  a  privilege, 
and  confer  on  it  that  of  a  burdensome  and  often  ruinous  duty.  It  is, 
in  its  essence,  involuntary  bankruptcy.  But  the  initiation  in  this  kind 
of  bankruptcj-  is  by  the  statute  given  to  the  creditor,  and  is  not  imposed 
on  the  debtor.  And  it  is  only  given  to  the  creditor  in  a  limited  class  of 
cases." 

Though  the  act  of  1867,  in  its  corresponding  provision,  which  is 
section  39  of  the  act,  speaks  of  the  "procuring  or  suffering"  by  the 
debtor  of  his  property  to  be  taken  on  legal  process,  with  intent  to  give 
a  preference,  etc.,  we  do  not  think  the  reasoning  of  the  Supreme  Court 
above  quoted,  in  regard  to  the  alleged  duty  or  necessit}-  for  the  debtor 
to  take  proceedings  to  be  declared  a  voluntary  bankrupt,  can  be  claimed 
to  be  at  all  affected  by  this  difference  between  the  two  acts,  but  is,  as 
we  have  said,  as  applicable  under  the  one  as  the  other. 

We  conclude,  then,  both  upon  reason  and  authority,  that  there  is  no 
dut}r  imposed  upon  the  debtor  to  file  a  voluntary  petition  in  bankruptcy 
for  the  purpose  of  discharging  a  preference,  however  obtained,  where 
no  other  way  of  doing  so  is  open  to  him,  and  that  his  mere  failure  to 
file  such  a  petition  will  not  warrant  an  inference  either  that  he  is  hope- 
lessly insolvent,  or  that  he  consents  to  the  preference  which  his  creditor 
has  obtained.  There  is  no  such  contradiction  of  terms  involved  in  the 
practical  administration  of  the  bankrupt  act.  The  failure  to  vacate  or 
discharge,  as  mentioned  in  the  act,  means,  evident!}',  a  failure  to  do 
something  which  would  relieve  the  debtor  from  the  consequence  of  his 
act,  in  having  "  suffered  or  permitted,"  etc.,  and  not  a  failure  to  do 
something  which  would  only  anticipate  those  consequences.  The  sec- 
tion in  the  act  of  1867  defining  acts  of  bankruptcy,  and  corresponding 
to  section  3  of  the  present  act,  is  section  39,  and  the  provision  analo- 
gous to  clause  3  of  section  3  reads  as  follows  :  — 

"  Sec.  39.  That  any  person  residing  and  owing  debts,  as  aforesaid, 
who,  after  the  passage  of  this  act  shall  .  .  .  procure  or  suffer  his 
property  to  be  taken  on  legal  process,  with  intent  to  give  a  preference 
to  one  or  more  of  his  creditors,  .  .  .  shall  be  adjudged  a  bankrupt  on 
the  petition  of  one  or  more  of  his  creditors  .  .  .  provided  such  petition 
is  brought  within  six  months  after  the  act  of  bankruptcy  shall  have  been 
committed." 

Without  laying  too  much  stress  on  the  distinction,  it  is  to  be  ob- 
served that  the  action  of  the  debtor,  as  described  in  this  section,  is  the 
procuring  or  suffering  his  property  to  be  taken  on  legal  process.  This 
denotes  in  itself  a  complete  act  of  the  debtor,  and  it  was  necessary  to 
limit  its  universality  by  attaching  to  it  the  specific  intent  to  give  a  pref- 
erence, etc.,  as  clearly  there  may  have  been  on  the  part  of  the  debtor 
a  procuring  or  suffering  of  legal  proceedings  that  had  no  reference  to 


SECT.  II.]  DUNCAN   V.    LANDIS.  291 

or  bearing  upon  the  preference  of  a  creditor.  In  clause  3  of  the  present 
act,  however,  as  already  quoted,  the  act  of  "  suffering  or  permitting" 
goes  at  once  to  the  preference  of  creditors,  and  there  is' no  necessity  of 
such  a  limitation  of  the  act  as  is  contained  in  the  bankrupt  law  of  1867. 
To  suffer  or  permit  a  preference  implies  an  intentional  act  on  the  part 
of  the  debtor.  The  coupling  of  the  specific  intent  as  to  a  preference  to 
the  act  of  procuring  or  suffering  a  judgment,  etc.,  in  the  act  of  1867, 
does  not  make  such  an  intent  more  necessaiy  than  do  the  words 
"  suffer  or  permit  a  preference  "  in  the  present  act.  While  the  act  of 
1867  requires  a  specific  intent  on  the  part  of  the  debtor  to  give  a  pref- 
erence, in  order  that  an  act  of  bankruptc}*  may  be  established,  the  act 
of  1898  no  less  involves  an  intent  on  his  part  that  a  preference  should 
be  obtained.  Any  voluntary  procurance  or  connivance,  as  connoted 
by  the  words  "  suffer  or  permit,"  on  the  part  of  the  debtor  in  the 
obtaining  by  a  creditor  of  a  preference,  is  the  equivalent  of  an  obtaining 
of  a  lien  with  intent  on  the  part  of  the  debtor  to  give  a  preference.  In 
each  case  the  intent  must  exist,  even  though,  as  already  stated,  slight 
evidence  may  suffice  in  the  former  case.  In  other  words,  the  provisions 
of  the  two  acts,  though  differently  framed,  are  in  this  regard  substan- 
tially the  same.  To  hold  otherwise  would  be  as  absurd  as  to  claim  that 
there  was  a  substantial  difference,  in  the  matter  of  intent,  between  sa}-- 
ing,  for  instance,  that  an  offence  shall  consist  in  a  man's  raising  his 
hand  within  striking  distance,  with  the  intent  to  commit  an  assault  upon 
another,  and  saying  that  it  shall  consist  in  committing  ,an  assault  by  so 
raising  his  hand.  In  delivering  the  opinion  of  the  Supreme  Court  in 
the  case  of  Wilson  v.  Bank,  referred  to  in  another  connection,  Mr. 
Justice  Miller,  of  course,  dwelt  upon  the  express  qualification  of  intent 
with  which  the  act  of  procuring  or  suffering  one's  property  to  be  taken 
on  legal  process,  etc.,  was  necessarily  coupled.  Bearing  what  has  just 
been  said  in  mind,  the  reasoning  of  that  case  will  apply  to  the  present 
one.  It  is  true  that  the  case  before  the  Supreme  Court  did  not  involve 
the  question  whether  the  party  was  rightfully  declared  a  bankrupt,  but 
arose  under  the  thirty-fifth  section  of  the  act  of  1867,  which  declares 
void  certain  acts  of  the  debtor,  which  were  done  "  with  a  view  to  give 
a  preference  "  to  a  creditor.  The  language  of  this  section,  so  far  as  we 
are  concerned  with  it  now,  is  that  if  any  person,  being  insolvent,  etc., 
within  four  months  of  filing  a  petition  by  or  against  him,  "  with  a  view- 
to  give  a  preference  to  any  creditor,  .  .  .  procures  any  part  of  his 
property  to  be  attached,  sequestered,  or  seized  on  execution,  .  .  .  the 
same  shall  be  void."  Here,  as  in  the  thirty-ninth  section,  above  referred 
to,  the  act  of  "procuring"  relates  to  the  attaching  of  the  debtor's 
property,  and  not  directly  to  the  obtaining  or  giving  a  preference.  The 
act  is  qualified  by  the  words  "  with  a  view  to  give  a  preference,"  etc. 
The  qualification  of  the  act  by  the  specification  of  the  intent  is  therefore 
necessary  in  both  sections  of  the  old  act.  In  considering  the  question 
under  the  thirty-fifth  section,  Mr.  Justice  Miller  construes  it  together 
with  the  thirty-ninth  section,  and  uses  this  language :  — 


292  DUNCAN   V.    LANDIS.  [CHAP.  IV. 

"  The  thirty-fifth  section  of  the  act,  which  is  designed  to  prevent 
fraudulent  preferences  of  a  person  in  contemplation  of  insolvency  or 
bankruptcy,  declares  that  any  attachment  or  seizure  under  execution 
of  such  person's  property,  procured  by  him  with  a  view  to  give  such  a 
preference,  shall  be  void  if  the  act  be  done  within  four  months  preceding 
the  filing  of  the  petition  in  bankruptcy  by  or  against  him.  Though 
the  main  purpose  of  the  thirty-ninth  section  is  to  define  acts  of  the 
trader  which  make  him  a  bankrupt,  and  that  of  the  thirty-fifth  is  to  pre- 
vent preferences  by  an  insolvent  debtor  in  view  of  bankruptcy,  both  of 
them  have  the  common  purpose  of  making  such  preferences  void,  and 
enabling  the  assignee  of  the  bankrupt  to  recover  the  property  ;  and 
both  of  them  make  this  to  depend  on  the  intent  with  which  the  act  was 
done  by  the  bankrupt,  and  the  knowledge  of  the  bankrupt's  insolvent 
condition  by  the  other  party  to  the  transaction.  Both  of  them  describe, 
substantially,  the  same  acts  of  payment,  transfer,  or  seizure  of  property 
so  declared  void.  It  is  therefore  very  strong!}'  to  be  inferred  that  the 
act  of  suffering  the  debtor's  property  to  be  taken  on  legal  process  in 
section  39  is  precisely  the  same  as  procuring  it  to  be  attached  or  seized 
on  execution  in  section  35.  Indeed,  the  words  '  procure  '  and  '  suffer' 
are  both  used  in  section  39." 

If  the  express  specification  of  the  intent  to  give  a  preference,  with 
which  the  act  of  procuring  or  suffering  property  to  be  taken  in  execution 
is  limited,  is  equivalent  to  the  intention  implied  in  the  words  "  to  suffer 
or  permit  a  preference  to  be  obtained,"  as  we  think  it  is,  then  the 
reasoning  of  the  Supreme  Court  in  the  case  of  Wilson  v.  Bank  is  appli- 
cable and  authoritative  in  the  present  case,  and  the  following  language 
of  Mr.  Justice  Miller  must  be  considered  :  — 

"  The  facts  of  the  case  before  us  do  not  show  any  positive  or  affirma- 
tive act  of  the  debtors  from  which  such  intent  may  be  inferred. 
Through  the  whole  of  the  legal  proceedings  against  them  they  remained 
perfectly  passive.  They  owed  a  debt  which  the}'  were  unable  to  pay 
when  it  became  due.  The  creditor  sued  them  and  recovered  judgment, 
and  levied  execution  on  their  property.  They  afforded  him  no  facilities 
to  do  this,  and  the}'  interposed  no  hindrance.  It  is  not  pretended  that 
any  positive  evidence  exists  of  a  wish  or  design  on  their  part  to  give 
this  creditor  a  preference,  or  oppose  or  delay  the  operation  of  the  bank- 
rupt act.  There  is  nothing  morally  wrong  in  their  course  in  this  matter. 
They  were  sued  for  a  just  debt.  They  had  no  defence  to  it,  and  they 
made  none.  To  have  made  an  effort  bv  dilatory  or  false  pleas  to  delay 
a  judgment  in  the  State  court  would  have  been  a  moral  wrong,  and  a 
fraud  upon  the  due  administration  of  the  law.  There  was  no  obliga- 
tion on  them  to  do  this,  either  in  law  or  in  ethics.  Any  other  creditor 
whose  debt  was  due  could  have  sued  as  well  as  this  one.  and  any  of 
them  could  have  instituted  compulsory  bankrupt  proceedings.  The 
debtor  neither  hindered  nor  facilitated  any  one  of  them.  How  it  is  possi- 
ble from  this  to  infer,  logically,  an  actual  purpose  to  prefer  one  creditor 
to  another,  or  to  hinder  or  delay  the  operation  of  the  bankrupt  act?" 


SECT.  II.]  DUNCAN   V.   LANDIS.  293 

The  following  language  in  the  same  opinion  is  also  pertinent :  — 

"The  general  legal  proposition  is  true,  that  where  a  person  does  a 
positive  act,  the  consequences  of  which  he  knows  beforehand,  then  he 
must  be  held  to  intend  those  consequences.  But  it  cannot  be  inferred 
that  a  man  intends,  in  the  sense  of  desiring,  promoting,  or  procuring 
it,  a  result  of  other  persons'  acts,  when  he  contributes  nothing  to  their 
success  or  completion,  and  is  under  no  legal  or  moral  obligation  to 
hinder  or  prevent  them.  Argument  confirmatory  of  these  views  may 
be  seen  in  the  fact  that  all  the  other  acts  or  modes  of  preference  of 
creditors  found  in  both  the  selections  we  have  mentioned,  in  direct  con- 
text with  the  one  under  consideration,  are  of  a  positive  and  affirmative 
character,  and  are  evidences  of  an  active  desire  or  wish  to  prefer  one 
creditor  to  others.  Why,  then,  should  a  passive  indifference  and  in- 
action, where  on  action  is  required  by  positive  law  or  good  morals,  be 
construed  into  such  a  preference  as  the  law  forbids?  The  construction 
thus  contended  for  is,  in  our  opinion,  not  justified  by  the  words  of  either 
of  the  sections  referred  to,  and  can  only  be  sustained  by  imputing  to 
the  general  scope  of  the  bankrupt  act  a  harsh  and  illiberal  purpose,  at 
variance  with  its  true  spirit  and  with  the  policy  which  prompted  its 
enactment." 

This  case  was  followed  in  the  Supreme  Court  by  the  case  of  Clark  v. 
Iselin,  21  Wall.  360,  22  L.  Ed.  568,  in  which  the  question  arose  under 
the  35th  section  of  the  act  of  1867.  It  was  a  suit  by  an  assignee  in 
bankruptcy  to  recover  certain  assets  which  the  bill  charged  were  made 
over  to  the  defendants  in  fraud  of  the  bankrupt  law.  The  court,  by  an 
opinion  delivered  by  Mr.  Justice  Strong,  confined  itself  to  the  construc- 
tion of  this  thirty-fifth  section,  which,  as  we  have  seen  above,  provides 
for  the  making  void  of  certain  acts  of  the  debtor  done  b}*  him  with  the 
view  to  give  a  preference,  etc.,  but,  as  we  have  seen  in  the  prior  case 
of  Wilson  v.  Bank,  the  same  construction  is  to  be  applied  to  bpth  the 
thirty-fifth  and  the  thirty-ninth  sections  of  the  act.  Although  the  word 
"procure,"  in  this  thirty-fifth  section  of  the  act  of  1867,  is  somewhat 
stronger  than  the  "  permit  or  suffer,"  in  the  third  section  of  the  present 
act,  it  is  only  a  matter  of  degree,  and  does  not  at  all  affect  the  argu- 
ment or  conclusion  arrived  at.  In  considering  the  meaning  arid  effect 
to  be  given  to  the  language  of  this  section,  the  Supreme  Court  say  :  — 

"  Now,  in  a  case  where  a  creditor,  holding  a  confession  of  judgment 
perfectly  lawful  when  it  was  given,  causes  the  judgment  to  be  entered 
of  record,  how  can  it  be  said  the  debtor  procures  the  entry  at  the  time 
it  is  made?  It  is  true,  the  judgment  is  entered  in  virtue  of  his  authority, 
—  an  authority  given  when  the  confession  was  signed.  That  may  have 
been  years  before,  or,  if  not,  it  may  have  been  when  the  debtor  was 
perfectly  solvent.  But  no  consent  is  given  when  the  entry  is  made, 
where  the  confession  becomes  an  actual  judgment,  and  when  the  pref- 
erence, if  it  he  a  preference,  is  obtained.  The  debtor  has  nothing  to 
do  with  the  entry.  As  to  that  he  is  entirely  passive.  Ordinarily  he 
knows  nothing  of  it,  and  Ue  could  not  prevent  it  if  he  would.  It  is 


294  DUNCAN    V.    LANDIS.  [CHAP.  IV. 

impossible,  therefore,  to  maintain  that  such  a  judgment  is  obtained  by 
him  when  his  confession  is  placed  on  record.  Such  an  assertion,  if 
made,  must  rest  on  a  mere  fiction.  And  so  it  has  been  decided  by  the 
Supreme  Court  of  Pennsylvania." 

That  the  court  here  was  dealing  alone  with  the  meaning  of  the  word 
"  procure,"  or  "  procure  or  suffer,"  and  not  with  the  provision  referring 
to  a  specific  intent,  is  shown  by  the  fact  that  the  court  introduced  a 
discussion  of  this  provision  of  the  statute  by  immediately  saying,  after 
what  has  been  quoted  above  :  — 

"  More  than  this,  as  we  have  seen,  in  order  to  make  a  judgment  and 
execution  against  an  insolvent  debtor  a  preference  fraudulent  under  the 
law,  the  debtor  must  have  procured  them  with  a  view  or  intent  to  give 
a  preference." 

The  construction  in  this  regard  of  the  act  of  1867  previously  given 
by  the  district  courts  was  entirely  overthrown  and  reversed  by  the 
Supreme  Court  in  this  and  other  cases.  Under  the  present  act  the 
decisions  of  the  district  courts  have  been  in  line  with  the  holding  of  the 
court  below  in  this  case,  upon  the  assumption  that  these  decisions  of 
the  Supreme  Court  turned  upon  the  proposition  that  intent  was  essen- 
tial under  the  act  of  1867,  and  upon  the  further  assumption  that  intent 
was  not  essential  under  the  act  of  1898.  To  this,  with  the  utmost 
respect  for  the  courts  so  deciding,  we  cannot  agree.  If  it  had  been  the 
intention  of  Congress,  in  framing  the  present  law,  to  make  the  mere 
obtaining  by  a  creditor  of  a  preference  by  judicial  proceedings,  apart 
from  any  exercise  of  the  will  or  action  of  the  debtor,  work  the  bank- 
ruptcy of  the  latter,  it  could  easily  have  been  done  by  using  fewer 
words  than  have  been  used.  They  would  not  have  spoken  of  acts  of 
bankruptcy  by  the  debtor  at  all.  They  would  have  omitted  the  words 
"  suffered  or  permitted,"  as  denoting  an  action  of  the  debtor,  and  have 
merely  provided  that  any  obtaining  by  a  creditor  of  a  preference  by 
means  of  judicial  proceedings  against  a  debtor  should  result  in  his 
being  declared  a  bankrupt.  This  was  actually  accomplished  in  the  late 
English  and  Canadian  acts,  but  it  was  accomplished  by  express  and 
unequivocal  language,  which  left  nothing  to  construction.  The  Eng- 
lish act  of  1890,  referred  to,  is  in  this  regard  as  follows :  — 

"  A  debtor  commits  an  act  of  bankruptcy  if  execution  against  him 
has  been  levied  by  seizure  of  his  goods,  under  process,  in  an}'  action  in 
any  court,  or  in  an}7  civil  proceeding  in  the  high  court,  and  the  goods 
have  been  either  sold  or  held  b}-  the  sheriff  for  twenty-one  days." 

To  hold  that  the  present  act  has  done  this,  even  to  give  effect  to  a 
supposed  general  policy  of  the  law,  in  face  of  the  clear  and  easily 
understood  meaning  of  the  language  employed,  would  be,  in  our  opin- 
ion, nothing  short  of  judicial  legislation.  The  construction  of  clause  3 
of  section  3  contended  for  by  the  appellees  is  so  harsh  in  its  conse- 
quences that  we  are  unable  to  believe  that  it  represents  the  will  of 
Congress.  Under  that  construction  a  person  while  solvent  ma_y  give  a 
judgment  bond  for  full  and  bona  fide  consideration,  and  .years  there- 


SECT.  II.]  DUNCAN   V.   LANDIS.  295 

after,  becoming  insolvent  and  being  temporarily  abroad,  judgment  may 
be  entered  against  him,  and  his  property  levied  on,  without  the  slight- 
est knowledge  or  suspicion  on  his  part ;  yet,  because  he  fails  to  have 
the  lien  of  the  execution  vacated  or  discharged  at  least  five  days  before 
a  sale  or  final  disposition  of  the  propert}'  levied  on,  he  can  be  forced 
into  involuntary  bankruptcy.  In  such  case  the  bankrupt  act  would  either 
require  the  debtor  to  perform  an  impossibility  to  avoid  bankruptcy,  or 
cause  him  to  be  adjudged  a  bankrupt  practically  and  substantially  on 
the  ground  of  his  insolvency  alone,  which  is  only  one  of  the  several 
elements  or  conditions  required  by  the  bankrupt  act  to  co-exist  before 
he  can  legally  be  adjudicated  a  bankrupt. 

Aside  from  the  reasons  heretofore  given  in  support  of  the  conclusion 
we  have  reached,  the  act  discloses  on  its  face  certain  expressions 
strongly  suggestive  of  the  will  of  the  debtor  as  involved  in  the  suffering 
or  permitting  a  creditor  to  obtain  a  preference.  We  find  language 
which  must  be  deemed  to  have  been  used  on  the  assumption  that  the 
act  of  bankruptcy  cannot  wholly  consist  of  the  act  of  the  creditor,  but 
must  include  an  act,  whether  by  way  of  positive  procurement  or  of 
connivance,  on  the  part  of  the  debtor,  which  will  justify  an  adjudication 
of  his  having  committed  an  act  of  bankruptcy.  Thus,  in  section  19  it 
is  provided  that  "a  person  against  whom  an  involuntary  petition  has 
been  filed,  shall  be  entitled  to  have  a  trial  by  jury,  with  respect  to  the 
question  of  his  insolvency,  .  .  .  and  any  act  of  bankruptcy  alleged  in 
such  petition  to  have  been  committed,"  etc.  This  provision  seems  to 
require  the  commission  of  an  act  by  the  alleged  bankrupt,  and  not 
merely  passivity  or  inaction  on  his  part.  So  in  section  60,  cl.  ' '  a,"  it 
is  provided  that  "  a  person  shall  be  deemed  to  have  given  a  preference 
if  being  insolvent,  he  has  procured  or  suffered  a  judgment  to  be  entered 
against  himself,"  etc.  Thus,  while  this  section  deals  with  the  treatment 
of  preferences,  it  may  fairly  be  inferred  that  the  procuring  or  suffering 
by  a  debtor  of  a  judgment  to  be  entered,  when  the  effect  of  its  enforce- 
ment will  be  "  to  enable  any  one  of  his  creditors  to  obtain  a  greater 
percentage  of  his  debt  than  any  other  of  such  creditors  of  the  same 
class,"  was  treated  by  Congress  as  giving  a  preference,  which  involves 
a  voluntary  act  on  the  part  of  the  debtor,  Section  67,  cl.  "  f,"  is  as 
follows  :  — 

"  That  all  levies,  judgments,  attachments,  or  other  liens,  obtained 
through  legal  proceedings  against  a  person  who  is  insolvent,  at  any 
time  within  four  months  prior  to  the  filing  of  a  petition  in  bankruptcy 
against  him,  shall  be  deemed  null  and  void  in  case  he  is  adjudged  a 
bankrupt  and  the  property  affected  by  the  levy,  judgment,  attach- 
ment, or  other  lien  shall  be  deemed  wholly  discharged  and  released 
from  the  same,"  etc. 

This  clause  provides  for  making  invalid  liens  obtained  through  legal 
proceedings  against  an  insolvent  person,  within  four  months  of  the  filing 
of  the  petition,  on  which  the  debtor  is  adjudged  a  bankrupt.  It  does 
not  relate  to  acts  of  bankruptcy,  but  is  predicated  upon  the  facts  that 


296  DUNCAN    V.   LANDIS.  [CHAP.  IV. 

an  adjudication  of  bankruptcy  has  intervened,  and  the  status  of  the 
bankrupt  and  of  his  estate  have  become  established.  It  by  no  means 
follows  that  the  obtaining  of  any  of  the  liens  referred  to  in  clause  "  f," 
involves  an  act  of  bankruptcy.  A  lien  obtained  through  legal  pro- 
ceedings, denounced  by  clause  "f,"  ma}'  not  have  been  "suffered  or 
permitted,"  within  the  meaning  of  section  3.  If  Congress  intended  by 
the  words  "suffered"  and  "permitted,"  or  either  of  them,  mere 
passivity  or  inaction,  it  is  somewhat  remarkable  that  they  were  em- 
pk>3'ed  instead  of  the  simpler  phrase  "obtained  through  legal  proceed- 
ings," as  used  in  section  67,  cl.  "  f."  The  distinction  in  meaning 
between  the  words  "suffered  and  permitted,"  as  used  in  section  3,  and 
the  word  "obtained,"  as  used  in  section  67,  cl.  "  f,"  is  not  only 
evident,  but  has  been  clearly  recognized  judicial!}'.  In  Re  Richards, 
96  Fed.  935,  37  C.  C.  A.  633,  decided  by  the  Circuit  Court  of  Appeals 
for  the  Seventh  Circuit,  it  appeared  that  a  judgment  note  was  given  by 
a  debtor  ten  months  before  he  became  a  voluntary  bankrupt,  and  that 
judgment  on  the  note  was  entered  within  four  months  of  the  filing  of 
the  petition  in  bankruptcy,  and  a  levy  made  upon  the  property  of  the 
debtor.  Tbe  case  related  to  the  validity  of  the  preference  thus  obtained 
in  violation  of  section  67,  cl.  "  f."  In  the  course  of  a  carefully  pre- 
pared opinion  the  court  recognized  the  distinction  above  referred  to, 
saying  while  treating  of  the  relation  of  clause  "c"  to  clause  "  f"  of 
section  67  :  — 

"But  subdivision  'f  is  broader  in  its  scope,  and  avoids  all  liens 
obtained  through  legal  proceedings  within  the  time  stated  against  a 
person  who  is  insolvent  within  the  meaning  of  the  subdivision,  irre- 
spective of  knowledge  on  the  part  of  the  creditor  of  the  fact  of  insolvency, 
and  irrespective  of  the  question  whether  the  obtaining  of  the  lien  was 
in  any  way  suffered  and  permitted  by  the  debtor.  .  .  .  We  are  of 
opinion,  therefore,  under  the  rule  stated,  corroborated  and  justified  by 
the  action  of  Congress,  that  the  provisions  of  subdivision  '  f '  must  pre- 
vail over  those  of  subdivision  'c,'  and  that  all  liens  obtained  through 
legal  proceedings  within  the  time  stated  against  a  person  who  is  insol- 
vent, and  irrespective  of  any  sufferance  or  permission  thereof  by  the 
debtor  and  of  any  knowledge  by  the  creditor  of  the  debtor's  insolvency,  • 
are  avoided  if  that  subdivision  can  be  held  to  apply  to  voluntary  pro- 
ceedings in  bankruptcy,  and  if  another  objection  hereinafter  considered 
is  unavailing.  .  .  .  The  validity-  of  the  lien  depends  upon  the  terms  of 
the  act  speaking  to  that  subject,  but  not  upon  the  question  whether  the 
acts  which  resulted  in  the  lien  were  acts  which  subjected  the  debtor  to 
proceedings  in  bankruptcy.  It  is  doubtless  true  that  the  debtor  could  • 
not  have  been  forced  into  bankruptcy  because  of  the  acts  done  by  him  ; 
but,  under  the  law,  when  for  any  reason  bankruptcy  has  supervened, 
and  adjudication  has  been  determined  by  the  court,  all  liens  which  fall 
under  the  ban  of  section  67  are  avoided,  whether  the  debtor  has  been 
or  could  have  been  adjudicated  a  bankrupt  for  his  acts  with  reference 
to  any  specific  lien." 


SECT.  II.]  DUNCAN   V.   LANDIS.  297 

We  have  quoted  at  length  from  the  foregoing  opinion  for  the  reason 
that  the  court  has  clearly  emphasized  and  set  forth  the  contrast  between 
the  provision  made  in  section  67,  cL  "  f,"  of  the  act,  making  void 
certain  liens  obtained  by  a  creditor,  and  the  provision  in  regard  to  what 
acts  of  a  debtor  shad  be  followed  by  the  consequences  of  bankruptcy. 
When  it  was  desired  to  render  liens  obtained  by  a  creditor  under  judi- 
cial proceedings  against  the  property  of  his  debtor  void,  under  certain 
circumstances,  without  reference  to  any  voluntary  act  of  the  debtor, 
Congress  had  no  difficulty  in  finding  appropriate  language  to  express  its 
meaning,  just  as  the  English  act  above  quoted  used  appropriate  and 
unequivocal  language  to  define  the  things  which,  being  done  by  the 
creditor,  should  work  the  bankruptcy  of  the  debtor,  without  requiring 
any  act  on  his  part.1 

DALLAS,  Circuit  Judge.  I  concur  in  the  conclusion  arrived  at  in 
this  case,  but  not  in  the  construction  put  b}-  the  majorit}'  of  the  court 
upon  clause  3  of  section  3  of  the  bankruptcy  act  of  1898.  The  reasons 
for  this  dissent  ma}'  be  briefly  stated,  and  need  not  be  elaborated.  I 
do  not  think  that  any  special  significance  should  be  ascribed  to  the 
word  "acts,"  as  it  occurs  in  section  3.  What  was  intended,  as  I  be- 
lieve, was  merely  to  designate  what  conduct  of  a  person  would  have 
the  effect  of  making  him  a  bankrupt.  The  word  "acts"  is  certainty 
sometimes  used  as  an  equivalent  for  the  word  "behaves,"  even  where 
the  behavior  referred  to  is  not  positive,  but  negative,  in  character,  as 
where  it  is  said  that  a  man  acts  unreasonably  in  not  doing  something 
which  in  reason  he  ought  to  do.  In  the  corresponding  section  of  the 
bankrupt  act  of  1867  it  was  unquestionably  so  used,  and  I  perceive  no 
ground  for  supposing  that  in  the  act  of  1898  it  was  employed  in  a 
narrower  sense.  By  section  39  of  the  act  of  1 867  it  was  provided,  among 
other  things,  that  any  person  "  who  has  been  arrested  and  held  in 
custody  under  or  by  virtue  of  mesne  process,  .  .  .  and  such  process  is 
remaining  in  force  and  not  discharged  by  payment,  ...  or  has  been 
actually  imprisoned,  .  .  .  shall  be  deemed  to  have  committed  an  act  of 
bankruptcy."  Here,  then,  we  find  that  under  the  act  of  1867  an  act  of 
bankruptcy  might  consist  of  the  debtor's  arrest  or  imprisonment,  which, 
of  course,  could  not  be  his  own  act,  and  that,  by  his  not  doing,  —  not 
paying,  —  the  act  of  bankruptcy  constituted  by  his  arrest  would  be 
consummated  and  established.  Hence  it  appears  that  Congress  in  the 
previous  statute  provided  that  certain  acts,  not  of  the  debtor  himself, 
should  be  deemed  to  be  acts  of  bankruptcy  committed  by  him  ;  and  I 
therefore  cannot  agree  that,  l)j'  reason  of  the  association  in  the  present 
act  of  the  same  phrase — "acts  of  bankruptcy  "  —with  the  words 
"suffered  or  permitted,"  these  words  must  be  interpreted  to  mean 
connivance,  co-operation,  or  participation,  and  nothing  else  besides. 
Neither  can  I  agree  that  the  words  "suffered  or  permitted"  necessarily 
import  positive  action.  They  may  do  so,  it  is  true  ;  but  they  also,  and 
1  Portions  of  this  opinion  immaterial  to  the  main  point  have  boon  omitted 


298  DUNCAN   V.    LANDIS.  [CHAP.  IV. 

I  think  ordinarily  (especially  when  disjunctively  presented),  signify 
passive  sufferance  or  quiescent  allowance,  —  "  not  to  forbid  or  hinder ; 
to  tolerate"  (Webster);  "to  refrain  from  hindering;  allow,  permit; 
tolerate"  (Century).  But  there  are  considerations  which,  in  my  opin- 
ion, should  have  greater  weight  in  the  construction  of  this  clause  than 
any  nice  discrimination  of  the  diverse  deflnitions  of  particular  words. 
The  cases  of  Wilson  v.  Bank  and  Clark  v.  Iselin  were  decided  under 
the  act  of  1867.  and,  with  those  decisions  and  that  act  presumably  in 
mind,  the  act  of  1898  was  passed,  with  provisions  which,  as  respects 
the  matter  in  question,  notably  differ  from  those  of  the  act  of  1867. 
The  word  "  procure,"  which  was  in  that  act,  and  which  might  well  be 
said  to  indicate  that  positive  action  on  the  part  of  the  debtor  was  con- 
templated, was  pointedly  omitted  from  the  act  of  1898  ;  and  to  the 
word  "  suffered  "  there  was  added  the  words  "  or  permitted,"  with,  as 
I  think,  the  evident  intention  of  making  it  clear  that  procurement  would 
not  be  necessary,  but  that  mere  sufferance  or  allowance  would  be 
enough,  to  occasion  bankruptcy.  Moreover,  clause  3  of  section  3  of 
the  act  of  1898  does  not  include  the  provisions  of  the  act  of  1867  with 
reference  to  the  debtor's  intent,  or  anything  whatever  upon  that  sub- 
ject ;  and  this  departure,  I  think,  shows  that  the  object  in  view  was  not 
merely  to  impose  bankruptcy  upon  the  debtor  because  he  had  given  a 
preference,  but  was  to  preclude,  where  possible,  the  acquisition  of  an}' 
advantage  of  one  creditor  over  others.  Taken  together,  I  cannot  but 
regard  these  modifications  as  significant  of  a  design  to  prevent  the 
present  statute  from  being  construed  as  the  former  one  had  been.  It 
cannot  be  supposed  that  such  suggestive  changes  in  their  otherwise 
similar  terms  were  made  without  purpose,  and  to  me  it  is  manifest  that 
the  intention  in  making  them  was  to  establish  as  the  law  of  1898  —  no 
matter  what  that  of  1867  might  have  been  —  that,  if  an  insolvent 
(regardless  of  intent  or  procurement)  either  suffered  or  permitted  any 
creditor  to  obtain  a  preference,  his  failure  to  vacate  it  within  the  time 
limited  would  be  an  act  of  bankruptcj" ;  and  this  understanding  is 
accordant  with  the  general  policy  of  the  act,  to  which  allusion  has  been 
made,  that  no  creditor  shall  be,  either  by  procurement  or  sufferance, 
enabled  "  to  obtain  a  greater  percentage  of  his  debt  than  any  other  of 
such  creditors  of  the  same  class."  Section  60.  The  decisions  of  the 
district  courts  in  other  circuits  as  well  as  in  this  one  are  in  harmony 
with  the  views  I  have  expressed.  Those  decisions l  are,  of  course,  not 
binding  upon  us,  but  they  are  entitled  to  much  weight ;  and,  in  my 
opinion,  the  construction  which  has  heretofore  uniformly  been  given  to 
the  clause  under  consideration  ought  not  now  to  be  discarded  in  this 
jurisdiction.1 

1  In  Wilson  r.  Nelson,  183  U.  S.  191,  the  Supreme  Court  adopted  the  view  of 
Dallas,  J.  Shiras,  J.,  however,  wrote  a  dissenting  opinion,  in  which  Fuller,  C.  J.,  and 
Brewer  and  Peckham,  J.I.,  concurred. 


SECT.  II.]     CITIZENS  BANKING  CO.  V.  KAVENNA  NATIONAL  BANK.       299 


CITIZENS   BANKING   COMPANY  t>.    KAVENNA 
NATIONAL   BANK. 

SUPREME  COURT  OP  THE  UNITED  STATES,  MARCH  16-JuNE  8,  1914. 
[Reported  in  234  United  States,  360.] 

MR.  JUSTICE  VAN  DEVANTER  delivered  the  opinion  of  the  court. 

Cora  M.  Curtis  was  adjudged  a  bankrupt  in  the  District  Court  for 
the  Northern  District  of  Ohio  for  (a)  suffering  and  permitting  while 
insolvent  the  Citizens  Banking  Company  to  recover  judgment,  and  to 
levy  on  her  real  estate  whereby  the  company  obtained  a  preference, 
and  (b)  failing  at  the  time  of  the  petition  which  was  one  day  less  than 
four  months  after  the  levy  of  execution  to  discharge  it. 

On  appeal  the  Circuit  Court  of  Appeals  certified  these  questions.1 

"  (1)  Whether  the  failure  by  an  insolvent  judgment  debtor,  and  for 
a  period  of  one  day  less  than  four  months  after  the  levy  of  an  execu- 
tion upon  his  real  estate,  to  vacate  or  discharge  such  levy,  is  a  '  final 
disposition  of  the  property '  affected  by  such  levy,  under  the  provisions 
of  section  3a  (3)  of  the  Bankruptcy  Act  of  1898. 

"(2)  Whether  an  insolvent  debtor  commits  an  act  of  bankruptcy 
rendering  him  subject  to  involuntary  adjudication  as  a  bankrupt,  under 
the  Bankruptcy  Act  of  1898,  merely  by  inaction  for  the  period  of  four 
months  after  the  levy  of  an  execution  upon  his  real  estate." 

It  will  be  observed  that  no  reference  is  made  to  an  accomplished  or 
impending  disposal  of  the  property  in  virtue  of  the  levy,  although  the 
mode  of  disposal  prescribed  by  the  local  law  is  by  advertisement  and 
sale.  2  Bates'  Ann.  Ohio  Statutes,  §§  5381,  5393. 

The  answers  to  the  questions  propounded  turn  upon  the  true  con- 
struction of  §  3a  (3)  of  the  Bankruptcy  Act. 

Looking  at  the  terms  of  this  provision,  it  is  manifest  that  the  act  of 
bankruptcy  which  it  defines  consists  of  three  elements.  The  first  is 
the  insolvency  of  the  debtor,  the  second  is  suffering  or  permitting  a 
creditor  to  obtain  a  preference  through  legal  proceedings,  that  is,  to 
acquire  a  lien  upon  property  of  the  debtor  by  means  of  a  judgment, 
attachment,  execution  or  kindred  proceeding,  the  enforcement  of  which 
will  enable  the  creditor  to  collect  a  greater  percentage  of  his  claim  than 
other  creditors  of  the  same  class,  and  the  third  is  the  failure  of  the 
debtor  to  vacate  or  discharge  the  lien  and  resulting  preference  five  days 
before  a  sale  or  final  disposition  of  any  property  affected.  Only  through 
the  combination  of  the  three  elements  is  the  act  of  bankruptcy  com- 

1  The  statement  of  facts  has  been  abbreviated. 


300     CITIZENS  BANKING  CO.  V.  KAVENNA  NATIONAL  BANK.   [CHAP.  IV. 

mitted.  Insolvency  alone  does  not  suffice,  nor  is  it  enough  that  it  be 
coupled  with  suffering  or  permitting  a  creditor  to  obtain  a  preference 
by  legal  proceedings.  The  third  element  must  also  be  present,  else 
there  is  no  act  of  bankruptcy  within  the  meaning  of  this  provision. 
All  this  is  freely  conceded  by  counsel  for  the  petitioning  creditor. 

The  questions  propounded  assume  the  existence  of  the  first  two  ele- 
ments and  are  intended  to  elicit  instruction  respecting  the  proper 
interpretation  of  the  clause  describing  the  third,  namely,  "  and  not 
having  at  least  five  days  before  a  sale  or  final  disposition  of  any  prop- 
erty affected  by  such  preference  vacated  or  discharged  such  prefer- 
ence." It  is  to  this  point  that  counsel  have  addressed  their  arguments. 

Without  any  doubt  this  clause  shows  that  the  debtor  is  to  have  until 
five  days  before  an  approaching  or  impending  event  within  which  to  va- 
cate or  discharge  the  lien  out  of  which  the  preference  arises.  What,  then, 
is  the  event  which  he  is  required  to  anticipate  ?  The  statute  answers, 
"a  sale  or  final  disposition  of  any  property  affected  by  such  preference." 
As  these  words  are  part  of  a  provision  dealing  with  liens  obtained 
through  legal  proceedings,  and  as  the  enforcement  of  such  a  lien  usually 
consists  in  selling  some  or  all  of  the  property  affected  and  applying  the 
proceeds  to  the  creditor's  demand,  it  seems  quite  plain  that  it  is  to  such 
a  sale  that  the  clause  refers.  And  as  there  are  instances  in  which  the 
property  affected  does  not  require  to  be  sold,  as  when  it  is  money  seized 
upon  execution  or  attachment  or  reached  by  garnishment,1  it  seems 
equally  plain  that  the  words  ' '  or  final  disposition  "  are  intended  to  in- 
clude the  act  whereby  the  debtor's  title  is  passed  to  another  when  a 
sale  is  not  required.  No  doubt,  the  terms  "  sale  or  final  disposition," 
explained  as  they  are  by  the  context,  are  comprehensive  of  every  act 
of  disposal,  whether  by  sale  or  otherwise,  which  operates  as  an  enforce- 
ment of  the  lien  or  preference. 

But  we  do  not  perceive  anything  in  the  clause  which  suggests  that 
the  time  when  the  lien  is  obtained  has  any  bearing  upon  when  the  prop- 
erty must  be  freed  from  it  to  avoid  an  act  of  bankruptcy.  On  the  con- 
trary, the  natural  and  plain  import  of  the  language  employed  is  that  it 
will  suffice  if  the  lien  is  lifted  five  days  before  a  sale  or  final  disposition 
of  any  of  the  property  affected.  This  is  the  only  point  of  time  that  is 
mentioned,  and  the  implication  is  that  it  is  intended  to  be  controlling. 

To  enforce  a  different  conclusion  counsel  for  the  petitioning  creditor 
virtually  contends  that  the  clause  has  the  same  meaning  as  if  it  read 
"  and  having  failed  to  vacate  or  discharge  the  preference  at  least  five 
days  before  a  sale  or  final  disposition  of  any  of  the  property  affected, 
or  at  most  not  later  than  five  days  before  the  expiration  of  four  months 
after  the  lien  was  obtained."  But  we  think  such  a  meaning  cannot  be 
ascribed  to  it  without  rewriting  it,  and  that  we  cannot  do.  The  con- 
tention puts  into  it  an  alternative  which  is  not  there,  either  in  terms  or 

1  See  Turner  v.  Fendall,  1  Cranch,  117,  133;  Sheldon  v.  Root,  16  Pick.  567;  Crane 
v.  Freese,  16  N.  J.  L.  305;  Green  v.  Palmer,  15  California,  411,  418;  2  Bates'  Ann. 
Ohio  Statutes,  §§  5374,  5383,  5469,  5470,  5483,  5531,  5548,  5555. 


SECT.  II.]    CITIZENS   BANKING  CO.   V.    RAVENNA   NATIONAL   BANK.   301 

by  fair  implication,  and  to  which  Congress  has  not  given  assent.  In- 
deed, it  appears  that  in  the  early  stages  of  its  enactment  the  bankruptcy 
bill  contained  a  provision  giving  the  same  effect  to  a  failure  to  dis- 
charge the  lien  within  a  prescribed  period  after  it  attached  as  to  a 
failure  to  discharge  it  within  a  designated  number  of  days  before  an 
intended  sale,  and  that  during  the  final  consideration  of  the  bill  that 
provision  was  eliminated  and  the  one  now  before  us  was  adopted. 
This,  of  course,  lends  strength  to  the  implication  otherwise  arising 
that  the  clause  names  the  sole  test  of  when  the  lien  must  be  vacated  or 
discharged  to  avoid  an  act  of  bankruptcy. 

The  contention  to  the  contrary  is  sought  to  be  sustained  by  a  refer- 
ence to  §§  3b,  67c  and  67f.  But  we  perceive  nothing  in  those  sections 
to  disturb  the  plain  meaning  of  §  3a  (3).  It  defines  a  particular  act  of 
bankruptcy  and  purports  to  be  complete  in  itself,  as  do  other  subsec- 
tions defining  other  acts  of  bankruptcy.  Section  3b  deals  with  the  time 
for  filing  petitions  in  bankruptcy  and  limits  it  to  four  months  after  the 
act  of  bankruptcy  is  committed.  It  says  nothing  about  what  consti- 
tutes an  act  of  bankruptcy,  but  treats  that  as  elsewhere  adequately 
defined.  Sections  67c  and  67f  deal  with  the  retrospective  effect  of 
adjudications  in  bankruptcy,  the  former  declaring  that  certain  liens 
obtained  in  suits  begun  within  four  months  before  the  filing  of  the  pe- 
tition shall  be  dissolved  by  the  adjudication,  and  the  latter  that  certain 
levies,  judgments,  attachments  and  other  liens  obtained  through  legal 
proceedings  within  the  same  period  shall  become  null  and  void  upon 
the  adjudication.  Both  assume  that  the  adjudication  will  be  grounded 
upon  a  sufficient  act  of  bankruptcy  as  elsewhere  defined,  and  give  to 
every  adjudication  the  same  effect  upon  the  liens  described  whether  it 
be  grounded  upon  one  act  of  bankruptcy  or  another.  And  what  is 
more  in  point,  there  is  no  conflict  between  §  3a  (3)  and  the  sections 
indicated.  All  can  be  given  full  effect  according  to  their  natural  im- 
port without  any  semblance  of  interference  between  §  3a  (3)  and  the 
others. 

But  it  is  said  that  unless  §  3a  (3)  be  held  to  require  the  extinguish- 
ment of  the  lien  before  the  expiration  of  four  months  from  the  time  it 
was  obtained  the  result  will  be  that  in  some  instances  the  lien  will  not 
be  dissolved  or  rendered  null  through  the  operation  of  §§  67c  and  67f, 
because  occasionally  the  full  four  months  will  intervene  before  an  act 
of  bankruptcy  is  committed  and  therefore  before  a  petition  can  be  filed. 
Conceding  that  this  is  so,  it  proves  nothing  more  than  what  is  true  of 
all  liens  obtained  through  legal  proceedings  more  than  four  months 
prior  to  the  filing  of  the  petition.  And  while  it  may  be  true,  as  is  sug- 
gested, that  if  the  debtor  \a  not  restricted  to  less  than  four  months 
within  which  to  extinguish  the  lien  there  will  be  instances  in  which 
general  creditors  will  be  affected  disadvantageous^,  it  must  be  re- 
flected that  there  also  will  be  instances  in  which  an  honest  and  strug- 
gling debtor  will  be  able  to  extinguish  the  lien  the  requisite  number  of 
days  before  a  sale  or  final  disposition  of  any  of  the  property  affected 


302     CITIZENS  BANKING  CO.  V.  RAVENNA  NATIONAL  BANK.    [CHAP.  IV. 

and  thereby  to  avoid  bankruptcy,  without  injury  to  any  of  his  creditors. 
But  with  this  we  are  not  concerned.  The  advantages  and  disadvan- 
tages have  been  balanced  by  Congress,  and  its  will  has  been  expressed 
in  terms  which  are  plain  and  therefore  controlling. 

Lastly  it  is  said  that  the  term  "  final  disposition  "  is  not  used  in  the 
sense  hereinbefore  indicated,  but  as  denoting  the  status  which  a  lien 
acquires  through  the  lapse  of  four  months  before  the  filing  of  a  peti- 
tion in  bankruptcy.  This  is  practically  a  reiteration  of  the  contention 
already  noticed,  but  probably  is  intended  to  present  it  from  a  different 
angle.  It  overlooks,  as  we  think,  the  influence  which  rightly  must  be 
given  to  the  context,  and  also  the  manifest  inaptness  of  the  term  to 
express  the  thought  suggested.  When  one  speaks  of  a  sale  or  final 
disposition  of  property  he  means  by  final  disposition  an  act  having 
substantially  the  effect  of  a  sale  —  a  transfer  of  ownership  and  control 
from  one  to  another  —  and  especially  is  this  true  when  he  is  referring 
to  a  sale  or  final  disposition  in  the  enforcement  of  a  lien.  "We  regard 
it  as  entirely  clear  that  the  term  is  so  used  in  this  instance,  and  that 
it  signifies  an  affirmative  act  of  disposal,  not  a  mere  lapse  of  time 
which  leaves  the  lieu  intact  and  still  requiring  enforcement.  To  illus- 
trate, let  us  take  the  instance  of  a  provisional  attachment  of  real  prop- 
erty, which  the  creditor  is  not  entitled  to  enforce  unless  he  sustains 
the  demand  which  is  the  subject  of  the  principal  suit ;  and  let  us  sup- 
pose that  the  debtor  defends  against  the  demand,  and  that  the  suit  is 
pending  and  undetermined  four  months  after  the  levy.  Of  course,  an 
adjudication  in  bankruptcy  upon  a  petition  filed  thereafter  would  not 
disturb  the  attachment.  But  could  it  be  said  that  the  property  attached 
was  finally  disposed  of  at  the  end  of  the  four  months?  An  affirmative 
answer  seems  quite  inadmissible. 

We  conclude  that  both  of  the  questions  propounded  by  the  Circuit 
Court  of  Appeals  should  be  resolved  in  the  negative. 

As  shown  by  the  reported  cases,  some  diversity  of  opinion  has 
arisen  in  other  Federal  courts  in  disposing  of  similar  questions  (In  re 
Rome  Planing  Mill,  96  Fed.  Rep.  812,  815  ;  In  re  Vastbinder,  126 
Fed.  Rep.  417,  420;  In  re  Tupper,  163  Fed.  Rep.  766,  770;  In  re 
Windt,  177  Fed.  Rep.  584,  586;  In  re  Crafts-Eiordon  Shoe  Co.,  185 
Fed.  Rep.  931,  934;  Folger  v.  Putnam,  194  Fed.  Rep.  793,  797;  In  re 
Truitt,  203  Fed.  Rep.  550,  554),  and  so  we  deem  it  well  to  observe 
that  the  conclusion  here  stated  has  been  reached  only  after  full  consid- 
eration of  those  cases. 

Questions  answered  "  No." 


^ECT.  II.]  RE   LOCKE.  303 

SECl.lON   II.    (continued}. 

(h)  TRANSFERS  FOB  PRESENT  CONSIDERATION. 

RE  LOCKE. 

DISTRICT  COURT  I'OK  THE  DISTRICT  OF  MASSACHUSETTS, 
DECEMBER,  1868. 

'^Reported  in  1  Lowell,  293.] 

OBJECTIONS  to  the  bankrupt's  discharge  heard  by  the  court.  The 
examination  of  the  bankrupt,  which  was  the  only  evidence  in  the  case, 
tended  to  show  that  he  tad  been  extensive!}-  engaged  in  trade  down  to 
the  year  1857,  when  h©  failed  and  settled  with  many  of  his  creditors. 
Others,  including  the  two  who  proved  their  debts  here  and  opposed  his 
discharge,  had  obtained  judgments  which  were  still  valid.  Since  18,57 
Locke  had  not  been  a  trader,  but  had  earned  money  by  service  in  the 
army  and  as  a  clerk.  The  specifications  set  up  certain  payments  made 
by  him  from  time  to  time,  within  four  months  before  filiflg  his  petition, 
for  rent  and  other  necessaries.  Locke  admitted  that  he  was  insolvent 
when  he  made  those  payments  and  for  ten  years  before,  but  denied 
any  intent  to  prefer  those  creditors  and  any  contemplation  of 
bankruptcy. 

J.  D.  Ball,  for  the  creditors. 

J.  S.  Abbott,  for  the  bankrupt. 

LOWELL,  J.  .  .  ,.  I  am  further  of  opinion  that  the  pa3rments  which 
this  debtor  made  a?.'e  not  within  any  true  definition  of  a  fraudulent  pref- 
erence. It  is  very  rarely  that  the  payment  of  rent,  or  of  a  butcher's 
or  grocer's  bill,  m  the  ordinary  course  of  dealing,  can  be  a  preference, 
because  the  consideration  is  a  continuing  one.  If  the  tenant  does  not 
pay  his  rent,  he  is  ejected,  aTKmieTmain  consideration  is  the  forbear- 
ance ;  and  so  of  the  other  like  bills,  though  in  a  less  degree.  We 
have  seen  that  9,  debtor  cannot  be  said  to  intend  a  preference,  unless 
he  expects  or  fears  either  to  stop  payment  or  to  become  bankrupt. 
The  evidence  shows  that  this  defendant  did  not  contemplate  bank- 
ruptcy. He  had,  indeed,  years  before  stopped  pa3'ment,  and  ceased 
to  be  a  trader,  .and  had  disposed  of  his  trade  capital  by  what  may  or 
may  not  have  ^been  preferences  by  the  law  of  his  domicile.  But  he 
had  accumulated  no  new  estate,  and  the  payments  which  are  now  ob- 
jected to  were  for  his  current  expenses,  and  made  out  of  his  current 
earnings,  though  they  were  made  monthly  and  not  day  by  day.  If 
these  were  technical  preferences  under  section  39,  which  I  doubt  in  the 
case  of  one  not  a  trader,  and  not  paying  one  trade  creditor  before 
another,  yet  I  cannot  believe  they  were  fraudulent  preferences  within 
section  29,  which  should  bar  his  discharge.  Discharge  granted.1 

l  In  Smith  v.  Teutonia  Ins.  Co.,  22  Fed.  Cas.  No.  13,1 15,  it  was  held  that  payment  of 
rent  by  a  company  after  its  insolvency  was  knowr  ^as  not  an  act  of  bankruptcy  as  if 


304  EX   PARTE   AMES.     RE   McKAY   AND   ALDUS.       [CHAP.  IV. 


Ex  PARTE  AMES.     RE  McKAY  AND  ALDUS. 

DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS,  APRIL,  1871. 

[Reported  in  \  Lowell,  561.] 

LOWELL,  J.  The  petitioner,  as  trustee  for  himself  and  his  partner, 
holds  a  mortgage  upon  nearty  all  the  stock,  tools,  and  other  movable 
property  of  the  bankrupts,  and  it  was  to  be  expected  that  the  general 
creditors  should  look  upon  the  transaction  with  suspicion,  and  inquire 
carefully  into  its  consideration.  The  advances  were  all  made  after  the 
nineteenth  of  September  ;  the  mortgage  was  made  on  the  seventeenth  of 
October,  and  McKay  and  Aldus  stopped  payment  on  the  latter  part 
of  November  of  the  same  year,  1868.  A  mortgage  of  all  the  property 
of  a  trader,  or  of  so  much  as  will  make  him  insolvent,  when  given  for 
a  pre-existing  debt,  is,  by  the  law  of  England,  conclusive!}'  presumed  to 
be  a  fraud  upon  the  bankrupt  act:  Worsley  v.  DeMattos,  1  Burr.  467; 
Dutton  v.  Morrison,  17  Ves.  199;  Lindon  v.  Sharp,  6  M.  &  G.  895; 
Stewart  v.  Moody,  1  C.  M.  &  R.  777 ;  and  although  our  law  does  not 
deal  in  conclusive  presumptions,  yet  the  result  is  much  the  same,  for 
it  would  be  almost  impossible  to  explain  away  such  an  apparent  prefer- 
ence. It  is  not  so  with  securit}1  given  for  present  or  future  advances, 
which  if  made  in  good  faith  and  without  notice  of  an}"  fraudulent  intent 
on  the  part  of  the  trader,  cannot  be  acts  of  bankruptcy,  for  the  reason 
that  a  fair  exchange  of  equivalents  injures  no  one.  Unless,  therefore, 
the  mortgagee  is  party  or  priv}T  to  some  fraud  or  preference  (as  in  the 
case  of  Ex  parte  Mendell,  Re  Butler,  supra,  506),  he  may  hold  his 
security  against  the  assignee  however  insolvent  the  mortgagor  may 
have  been  at  the  time.  Hutton  v.  Cruttwell,  1  Ellis  &  B.  15  ;  Bittle- 
stone  v.  Cooke,  6  Ellis  &  B.  296 ;  Harris  v.  Rickett,  4  H.  &  N.  I.1 

prevented  the  "  forfeiture  of  the  lease  and  the  consequent  loss  of  their  office  furniture 
and  other  property."  Reed  v.  Phinney,  2  N.  B.  N.  1007  (referee),  ace.  See  also  Re 
Pearson,  95  Fed.  Rep.  425.  In  Re  Merchant's  Ins.  Co.  6  B.  R.  43,  48,  however,  the 
court  held  that  payment  of  the  rent  of  a  lot  on  which  the  lessee  had  erected  a  valuable 
building,  though  made  with  a  view  of  "  subserving  the  best  interests  of  creditors,"  was 
"  a  technical  act  of  bankruptcy."  In  Re  Lange,  97  Fed.  Rep.  197,  Brown,  D.  J.,  said : 
"  Payment  of  rent  by  an  insolvent  is  not  necessarily  an  act  of  bankruptcy.  But  when 
it  is  done  as  a  means  and  for  the  purpose  of  carrying  on  a  business  in  fraud  of 
creditors,  it  should  be  so  regarded."  See  also  Macon  Co.  v.  Beach,  156  Fed.  1009. 

In  Smith  v.  Teutonia  Ins.  Co.,  supra,  it  was  also  held  that  payment  of  salaries  in  the 
course  of  business  was* not  an  act  of  bankruptcy,  but  in  Re  Kenyon,  6  B.  R.  238,  it  was 
held  that  payment  even  of  wages  entitled  to  priority  under  the  bankrupt  act  was  an 
act  of  bankruptcy.  The  surrender  of  such  payments  by  creditors  as  a  condition  of 
proof  was  compelled  in  Re  Kohn,  2  N.  B.  N.  367  (referee) ;  Re  Jones,  2  N.  B.  N.  961. 

1  Tiffany  v.  Boatman's  Inst.,  18  Wall.  375;  Ex  parte  Packard,  1  Low.  523;  Darby 
v.  Institution,  1  Dill.  144;  Gaffney  v.  Signaigo,  1  Dill.  158;  Re  York,  3  B.  R.  661  ; 
Harrison  v.  McLaren,  10  B.  R.  244 ;  Re  Montgomery,  12  B.  R.  321  ;  Douglass  v.  Voge- 
ler,  6  Fed.  Rep.  53 ;  Re  Cobb,  96  Fed.  Rep.  821 ;  Re  Wolf,  98  Fed.  Rep.  84 ;  Farmers', 
&c.  Bank  v.  Carr,  127  Fed.  690  (C.  C.  A.) ;  Love  v.  Export  Storage  Co.,  143  Fed.  1 
(C.  C.  A.) ;  Leighton  v.  Morrill,  159  Mass.  271 ;  Farmers',  &c.  Bank  v.  Mosher,  63 


SECT.  II.]  EX   PAKTE    AMES.     RE   McKAY   AND   ALDUS.  305 

In  cases  of  a  mixed  character,  where  security  for  a  past  debt  is  coupled 
with  a  further  advance,  the  law  of  England  is  thus  stated  b}'  the  latest 
text  writer:  "  Jt  does  not  appear  to  be  formally  settled  whether  the 
assignment  by  a  debtor  of  the  whole  of  his  effects,  in  consideration 
partly  of  an  existing  debt  and  partly  of  an  advance,  is  or  is  not  an  act 
of  bankruptcy."  After  citing  the  authorities  on  both  sides,  he  adds  : 
"  The  weight  of  authority  would  seem  to  be  in  favor  of  a  transaction 
of  this  sort  not  being  an  act  of  bankruptcy  where  the  advance  is  made 
bona  fide  to  enable  the  debtor  to  meet  his  engagements  and  carry  on 
his  business.  Such  an  act  may  be,  and  in  fact  often  is,  the  wisest  course 
a  trader  can  take  to  promote  the  interest  of  his  creditors."  Robson  on 
Bankruptc}1,  110,  citing  Re  Colemere,  L.  R.  1  Ch.  Ap.  128;  Allen  v. 
Bonnett,  21  L.  J.  N.  s.  309. 1 

I  am  inclined  to  think  that  the  test  proposed  by  Mr.  Robson  is  the 
true  one  under  our  law.  It  is  not  every  insolvent  who  can  be  made 
bankrupt  by  his  creditors,  though  ever}'  insolvent  can  petition  in  his 
own  behalf.  Congress  has  carefull}'  refrained  from  saj'ing  that  a  state 
of  insolvency  is  equivalent  to  an  act  of  bankruptcy,  though  hopeless  in- 
solvency as  proved  by  certain  tests  is  so.  For  instance,  a  trader  whose 
paper  lies  over  for  fourteen  days  has  become  bankrupt ;  but  if  his  credit 
is  sufficient  to  enable  him  to  obtain  a  renewal  within  thirteen  days,  he 
cannot  be  proceeded  against  as  a  bankrupt  on  that  ground.  The  ques- 
tion being  in  each  case  whether  there  was  an  intent  to  prefer,  there  may 
be  man}*  in  which  the  evidence  of  a  real  and  honest  intention  not  to 
stop  payment  may  make  valid  a  security  which  was  partly  given  for 
money  previously  advanced,  if  coupled  with  sufficient  present  advan- 
tages to  the  debtor  to  relieve  the  case  of  any  fraudulent  appearance. 
And  there  may  even  be  cases  where  the  purpose  and  expectation  to 
keep  on  are  so  manifest  that  no  intent  to  prefer  can  be  found,  though 
the  insolvency  was  well  known  to  both  parties. 

The  present  case,  however,  is  not  one  which  calls  for  any  critical 
examination  into  the  boundary  lines  of  the  domain  of  preference.  The 
history  of  the  dealings  between  these  parties  from  the  19th  of  Septem- 
ber onward  fails  to  show  any  intended  fraud  on  the  act.  Indeed  I 

Neb.  130;  Atlantic  Ref.  Co.  v.  Stokes,  77  N.  J.  Eq.  119;  Stackhouse  v.  Holden,  66 
N.  Y.  App.  I).  423. 

Similarly  a  sale  for  valne  may  be  made  by  an  insolvent.  Sedgwick  v.  Lynch,  5  Ben. 
489;  Re  Pnsey.  7  B.  R.  45;  Sedgwick  v.  Wormser,  7  B.  R.  186;  Tiffany  v.  Lucas, 
8  B.  R.  49  ;  Re  Strenz,  8  Fed.  Rep.  311  ;  North  v.  McDonald,  1  Wyo.  .348,  351.  In 
Re  Strenz,  the  sale  was  of  the  insolvent's  entire  stock  of  goods  and  fixtures. 

i  In  the  seventh  edition  of  Robson  on  Bankruptcy,  155  (1894),  the  passage  roads: 
"  It  may,  however,  be  now  considered  as  settled  that  a  transaction  of  this  sort  is  noi 
an  act  of  bankruptcy,  where  the  advance  is  of  a  substantial  sum  and  made  Ixnxi  .fide  to 
enable  the  debtor  to  meet  his  engagements,  and,  if  a  trader,  to  carry  on  his  business. 
...  If,  however,  the  circumstances  of  the  case  are  such  as  to  show  that  the  real 
object  in  making  the  advance  was  not  to  enable  the  debtor  to  continue  his  trade  or 
meet  his  engagements,  but  to  secure  to  the  creditor  the  repayment  of  the  debt  pre- 
viously owing  to  him,  the  transaction  will  be  regarded  as  a  fraud  on  the  other  cred 
itors  and  an  act  of  bankruptcy." 


306  EX   PAKTE   AMES.     RE   McKAY   AND   ALDUS.       [CHAP.  IV. 

understand  it  to  be  admitted  that  there  was  no  such  intent  at  first ; 
but  the  assignees  think  the}-  can  discover  a  point  where  good  faith  ends 
and  preference  begins.  The}'  argue  that  the  lenders  advanced  more 
money  than  they  had  intended  or  more  than  they  had  security  for,  and 
when  thej"  found  this  out  determined  to  take  the  mortgage  at  any  rate, 
to  cover  their  advances  and  secure  themselves  if  possible.  The  evi- 
dence lends  no  aid  to  this  theory,  but  sets  out  a  continuing  course  of 
dealing  in  which  loans  and  security  were  contemporaneous  throughout. 
I  find  it  to  be  fully  established  that  the  firm  of  McKay  &  Aldus  hoped 
and  intended  to  continue  their  business,  and  made  the  mortgage  with 
that  view,  and  that  their  representations  to  the  petitioner  were  calcu- 
lated to  make  him  believe  not  only  that  such  was  their  hope,  but  that 
it  was  one  that  might  be  reasonably  entertained.  A  mortgage  made 
under  such  circumstances  and  for  such  a  purpose  cannot  be  successfully 
assailed  if  it  is  given  for  present  and  future  advances  only.  It  is 
argued,  however,  very  strongly  that  this  mortgage  was  intended  mainly 
for  past  loans.  No  doubt  it  reads  so  on  its  face  ;  but  the  proof  is  that 
many  of  the  acceptances  recited  on  it,  although  some  of  them  are  dated 
back  a  few,  days,  so  that  it  should  not  fall  due  at  once,  were  given  on 
n  the  credit  of  this  mortgage,  and  were  not  in  fact  delivered  until  the 

(T  security  itself  was  delivered.     Our  law  of  preference  sets  aside  all  pay- 

ments and  conveyances  made  with  intent  to  prefer  one  creditor  over 
the  rest,  whatever  motives  may  have  been  brought  to  bear  on  the  debtor 
by  threat,  entreat}",  or  legal  coercion.  And  with  us  it  is  perhaps  not 
the  law,  as  it  in  England,  that  a  general  promise  of  security  given  at 
the  time  the  debt  is  contracted,  may  be  executed  after  the  debtor  has 
become  insolvent.  Such  a  promise  will  not  save  the  act  from  being 
a  preference,  if  it  would  have  been  one  without  the  promise.  This,  I 
have  more  than  once  ruled  to  the  jury,  and  there  are  reported  cases  for 
it.  Arnold  v.  Maynard,  2  Story,  349  ;  Graham  v.  Stark,  3  B.  R.  92 ; 
Blodgett  v.  Hildreth,  11  Gush.  311.  I  have  been  accustomed  to  say  that 
such  an  agreement  merely  amounts  to  an  agreement  to  give  a  preference 
if  one  should  become  necessary.1  But  I  have  always  ruled  that  security 
fairly  given,  as  part  of  the  same  transaction  as  the  loan,  could  not  be  in- 
validated by  a  change  of  the  borrower's  situation  re  infecta,  as  if  the 
money  were  advanced  while  the  mortgage  was  in  course  of  preparation, 
and  the  debtor  fails  in  the  mean  time.2  I  have  not  seen  or  known  of  any 

1  Bank  of  Leavenworth,  v.  Hunt,  11  Wall.  391  ;  Rundle  v.  Murgatroyd,  4  Ball. 
304  ;  Re  Connor,  1  Low.  532  ;  Brett  v.  Carter,  2  Low,  458 ;  Barrow  ».  Morris,  14  B.  R. 
371 ;  Burdick  v.  Jackson,  15  B.  R.  318 ;  Lloyd  r.  Strobridge,  16  B.  R.  197  ;  Holmes  v. 
Winchester,  135  Mass.  299 ;  Mechanics,  &c.  Bank  v.  Ernst,  231  U.  S.  60,  occ. 

M'Mechen's  Lessee  v.  Grundy,  3  H.  &  J.  185,  contra. 

2  Re  Perrin,  7  B.  R.  283;  Re  Montgomery,  17  Fed.  Cas.  No.  9,732;  Gattman  v. 
Honea,  12  B.  R.  493;  Sparhawk  v.  Richards,  12  B.  R.  74;  Croswell  v.  Allis,  25  Conn. 
301 ;  Nicholson  v.  Schmucker,  81  Md.  459 ;  Bush  v.  Boutelle,  156  Mass.  167,  and  earlier 
Massachusetts  decisions  cited,  ace.     See  also  Post  v.  Corbin,  5  B.  R.  11 ;  Williams  v. 
Clark,  47  Minn.  53;  Cartwright  v.  Wilmerding,  24  N.  Y.  521.     Conf.  Re  Morrow,  134 
Fed.  686. 


SECT.  II.]  EX   PARTE   AMES.     RE   McKAY   AND   ALDUS.  307 

case  which  brings  up  the  somewhat  nicer  question,  argued  here,  whether 
specific  and  definite  security,  unconditionally  stipulated  for  in  writing, 
may  be  given  after  a  lapse  of  time  and  a  change  of  circumstances.  This 
may  depend  on  whether  the  contract  is  one  that  a  court  of  law  or  equity 
would  enforce  in  inviturn ;  for  I  apprehend  and  have  often  decided 
subject  to  a  correction  that  has  not  }-et  been  made,  that  the  assignee 
stands  no  better  than  the  bankrupt  in  all  matters  of  title,  excepting 
where  there  is  actual  or  constructive  fraud.  The -petitioner  insists  that 
the  letter  of  McKay  &  Aldus  to  him,  of  21  September,  if  acted  on  and 
if  the  money  was  advanced  on  the  faith  of  it,  would  give  him  an  equita- 
ble lien  which  would  prevail  against  the  assignee.  I  shall  not  examine 
the  point  of  law,  because  the  facts  negative  any  illegal  intent,  so  that 
I  must  uphold  the  mortgage  whether  it  was  a  mere  continuation  of 
the  written  promise  or  was  a  new  contract.  The  petitioner  advanced 
money  from  time  to  time  and  took  security  for  each  advance,  and  when 
the  mortgage  was  ordered  and  was  being  drawn  up,  he  had  what  ap- 
peared to  be  ample  security  for  his  then  existing  advances.  It  has 
turned  out  that  one  piece  of  propert3'  which  he  then  held  is  of  much  less 
value  than  was  supposed,  and  one  other  of  somewhat  less  value,  but 
there  was  no  reason  to  suspect  this  at  the  time,  and  the  difference  even 
now  is  but  trifling  compared  with  the  whole  amount  at  issue,  and  I 
cannot  find  as  a  fact  that  this  mortgage  was  given  with  any  intent  to 
prefer,  or  with  any  fear  that  the  existing  advances  were  not  amply 
secured.  The  conduct  of  both  parties  before  and  after  and  at  the  time 
show  as  clearly  as  does  all  the  rest  of  the  evidence  that  the  mortgage 
was  intended  for  a  legitimate  business  transaction,  having  relation  to 
the  continuance  and  not  the  stopping  of  the  trade,  and  that  the  advances 
made  at  and  after  the  time  were  the  sole  moving  consideration  for  the 
mortgage.  Under  these  circumstances  I  do  not  feel  justified  in  avoid- 
ing the  mortgage  even  to  the  extent  of  the  few  thousand  dollars  that 
are  said  not  to  have  been  already  fully  secured  of  the  advances  made  in 
September.  I  do  not  undertake  to  recapitulate  evidence,  but  I  may 
say  here  that  considering  the  dates,  I  doubt  whether  there  is  even  a 
small  balance  of  the  earlier  advances  left  to  be  paid  out  of  the  property 
embraced  in  the  mortgage  ;  because  I  think  it  will  be  found  that  accept- 
ances for  at  least  four  or  five  thousand  dollars  were  advanced  while  the 
mortgage  was  in  preparation,  and  these  would  be  protected  by  it  if  such 
was  the  agreement  of  the  parties  when  they  were  given.1 

1  A  portion  of  the  opinion  dealing  with  what  the  mortgage  covered  is  omitted. 


308  IN  RE  WOLF.  [CHAP.  iv. 


IN  RE  WOLF. 

DISTRICT  COURT  FOR  THE  NORTHERN  DISTRICT  OF  IOWA,  DECEMBER 

11,  1899. 

[Reported  in  98  Federal  Reporter,  84.] 

SHIRAS,  District  Judge.  From  the  facts  certified  to  the  court,  it 
appears  that  the  bankrupt,  Wolf,  being  indebted  to  Julius  Arkin,  on 
the  15th  day  of  May,  1899,  executed  and  delivered  to  him,  as  evidence 
of  his  indebtedness,  a  promissory  note  for  $200,  payable  in  90  days 
from  date.  On  the  22d  day  of  July,  1899,  the  bankrupt  borrowed  of 
Arkin  the  sum  of  $100,  giving  his  note  therefor,  pa}Table  in  30  days 
from  date  ;  and  to  secure  this  indebtedness,  as  well  as  that  evidenced 
by  the  note  dated  May  15,  1899,  the  bankrupt  executed  and  delivered 
to  Arkin  a  chattel  mortgage  on  his  stock  of  goods  in  Lisbon,  Iowa,  — 
it  appearing  that  Arkin  would  not  advance  the  loan  of  $100  unless  the 
bankrupt  would  give  security  to  cover,  also,  the  pre-existing  indebted- 
ness. Shortly  after  the  execution  and  recording  of  this  mortgage, 
Wolf,  the  mortgagor,  was  adjudged  to  be  bankrupt,  and  his  stock  in 
tirade  was  taken  possession  of  and  was  sold  by  the  trustee ;  and  the 
mortgagee  filed  his  intervening  petition  before  the  referee,  praying  that 
he  be  held  to  have  a  valid  lien  on  the  stock  of  goods  as  security  for  the 
indebtedness  due  him.  Upon  the  hearing  before  the  referee,  it  was 
A  eld  that  the  mortgage  security  was  void  as  to  creditors,  in  that  it  was 
H  preference,  and  taken  under  circumstances  rendering  it  invalid  as 
against  the  creditors  represented  by  the  trustee. 

Viewed  as  a  security  given  to  secure  the  payment  of  the  pre-existing 
indebtedness  evidenced  by  the  note  dated  May  loth,  the  holding  of  the 
referee  that  the  mortgage  was  invalid,  because  thereby  a  preference 
was  intended  to  be  created  in  favor  of  the  creditor,  is  sustained.1 
Viewed,  however,  as  a  security  for  the  sum  of  $100,  money  advanced 
to  the  bankrupt  at  the  time  of  the  execution  of  the  mortgage,  there  is 
nothing  shown  in  the  evidence  which  required  the  holding  that  the 
security  given  for  this  loan  is  not  valid.  As  the  security  was  given  for 
a  debt  then  created,  it  was  a  present  security,  and  not  a  preference 
which  was  created  by  the  mortgage  ;  and  the  case  comes  within  the 
rule  announced  by  Judge  Dillon  in  Darby  v.  Institution,  1  Dill.  144, 
Fed.  Gas.  No.  3,571,  wherein  it  is  said  that:  — 

"  An  insolvent  person  ma\*  properly  make  efforts  to  extricate  himself 
from  his  embarrassments,  and  therefore  he  may  borrow  money,  and  give 
at  the  time  security  therefor,  provided,  always,  the  transaction  be  free 
from  fraud  in  fact,  and  upon  the  bankrupt  act.  And  hence  it  is  a 
settled  principle  of  bankrupt  law,  both  in  England  and  in  this  country, 
that  advances  made  in  good  faith  to  a  debtor  to  carry  on  business,  upon 

1  Johnson  v.  Wald,  93  Fed.  Rep.  640  (C.  C.  A.),  ace. 


SECT.  II.]  IN   RE   WOLF.  309 

security  taken  at  the  time,  do  not  violate  either  the  terras  or  policy  of 
the  bankrupt  act." 

When  the  mortgage  security  was  taken  in  this  instance,  it  was  shown 
on  the  face  of  the  instrument  that  it  was  given  in  part  to  secure  a  pre- 
existing debt,  and  in  part  to  secure  a  note  of  even  date.  The  mortgage 
was  duly  recorded,  and  no  other  creditor  could  be  misled  by  the  provi- 
sions thereof.  As  between  the  bankrupt  and  the  creditor,  the  mortgage 
was  valid,  was  not  tainted  with  fraud  in  fact,  and  the  only  objection  to 
be  urged  against  the  same  is  that  if  the  trustee  should  pay  the  note  for 
$200,  dated  May  15th,  it  would  be  giving  a  preference  to  the  mort- 
gagee over  the  other  creditors,  as  that  was  a  debt  created  before  the 
giving  of  the  mortgage,  whereas  the  bankrupt  had  full  right  to  give 
security  for  the  present  loan  of  $100.  In  other  words,  if  the  bankrupt 
had  given  on  the  22d  of  July  a  chattel  mortgage  on  his  stock  to  secure 
the  pre-existing  debt,  evidenced  by  the. note  dated  May  loth,  and  on 
the  same  day  had  given  a  second  mortgage  to  secure  the  loan  of  $100 
then  advanced  as  a  present  consideration,  the  first  mortgage  might  be 
nonenforceable  against  other  creditors,  under  the  provisions  of  the  bank- 
rupt act,  but  the  second  mortgage  would  be  valid,  being  given  for  a 
present  consideration  advanced  in  good  faith  upon  the  faith  of  the 
security  created  by  the  second  mortgage.  In  equity  the  rights  of  the 
parties  are  not  affected  by  the  fact  that  both  the  past  and  present  debt 
are  secured  b}'  one  mortgage  instead  of  two.  As  already  said,  there 
was  no  effort  to  mislead  creditors  by  uniting  the  past  debt  with  the 
present  loan  in  one  note,  thus  apparently  making  the  past  debt  a  pres- 
ent one,  but  the  actual  situation  was  made  plain  on  the  face  of  the 
mortgage.  There  being  no  actual  fraud  in  the  transaction,  no  provision 
of  the  bankrupt  act  is  violated  by  holding  that  Arkin  is  entitled  to  the 
benefit  of  his  security  so  far  as  the  note  for  $100  is  involved,  and  it  is 
so  ordered.1 

1  In  Denny  v.  Dana,  2  Cush.  160,  it  was  held,  SHAW,  C.  J.,  delivering  the  opinion, 
that  a  mortgage  which  was  in  part  a  voidable  preference  was  wholly  void,  and  this 
case  has  been  followed  in  Tuttle  «'.  Truax,  I  B.  It.  601;  Re  Jordon,  9  B.  R.  416; 
Grannis  ».-.  Beardsley,  10  Fed.  Cas.  No.  5,688;  Paine  v.  Waite,  11  Gray,  190;  Forbes  v. 
Howe,  102  Mass.  427.  See  also  Goodrich  »•.  Wilson,  119  Mass.  429.  But  other  cases 
hold  that  the  security  is  valid  as  to  the  present  advance.  Whiston  v.  Smith,  2  Low. 
101  ;  Corhett  v.  Woodward,  5  Sawy.  40.3 ;  Re  Stowe,  6  B.  It.  429 ;  Cramton  v.  Tarhell, 
6  Fed.  Cas.  No.  3,349;  Rf  Cobb,  96  Fed.  Rep.  821.  See  also  Bucknam  v.  Goss, 
1  Hask.  630.  This  seems  well  settled  under  the  Bankruptcy  Law  of  1898.  Re  Honk, 
111  Fed.  154;  Stedman  v.  Bank  of  Monroe,  117  Fed.  237  (C.  C.  A.);  Re  Hersey,  171. 
Where  the  creditor  had  no  reason  to  believe  a  preference  would  be  effected  by  the 
mortgage,  it  has  been  upheld  as  security  for  the  antecedent  debt  as  well  as  that  pres- 
ently created.  Farmers'  Bank  v.  Carr,"  127  Fed.  690  (C.  C.  A.);  Re  Bartlett,  172 
Fed.  679.  But  see  sec.  67d  of  the  statute  aa  amended  in  1910. 


310  SAWYER   V.   TURPIN.  [CHAP.  IV. 


SAWYER  v.   TURPIN. 

SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER,  1875. 
[Reported  in  91  United  States,  114.] 

APPEAL  from  the  Circuit  Court  of  the  United  States  for  the  District 
of  Massachusetts. 

On  the  fifteenth  day  of  Ma}',  1869,  J.  C.  Bacheller,  in  order  to  secure 
a  debt  due  by  him  to  Novelli  &  Co.,  executed  a  bill  of  sale  conveying 
his  chattel  interest  in  certain  property  to  Turpin,  one  of  the  defendants 
below. 

This  conveyance  was  not  recorded,  nor  was  possession  had  there- 
under. 

On  the  31st  of  July,  1869,  Turpin  having  surrendered  the  bill  of 
sale,  Bacheller,  in  exchange  therefor,  executed  to  him  a  mortgage  upon 
the  same  property.  This  mortgage  was  recorded  on  the  17th  of  the 
following  September. 

Bacheller  filed  his  petition  in  bankruptcy  the  twenty-second  day  of 
October  then  next  ensuing  ;  and  the  appellants,  his  assignees,  filed  their 
bill  in  the  District  Court  to  set  aside  the  mortgage  as  a  fraudulent  pref- 
erence of  a  creditor,  alleging  that  Bacheller  was  insolvent  when  the 
mortgage  was  given,  and  that  Turpin,  and  Novelli  &  Co.,  the  other 
defendants,  knew  of  the  fact. 

The  District  Court  passed  a  decree  dismissing  the  bill,  which  was 
affirmed  by  the  Circuit  Court.  The  assignees  appealed  to  this  court. 

The  recording  statutes  of  Massachusetts  which  apply  to  the  case  are 
set  forth  in  the  opinion  of  the  court. 

Mr.  Benjamin,  Dean  and  Mr.  J.   G.  Abbott,  for  the  appellants. 

Mr.  Joshua  D.  Ball,  for  the  appellees. 

Mr.  Justice  STRONG  delivered  the  opinion  of  the  court. 

The  only  question  presented  by  this  appeal  is,  whether  the  mortgage 
given  by  the  bankrupt  on  the  thirty-first  day  of  July,  1869,  to  Edward 
Turpin,  the  agent  of  Novelli  &  Co.,  was  a  fraudulent  preference  of 
creditors  within  the  prohibition  of  the  bankrupt  act,  and  therefore 
void  as  against  the  assignees  in  bankruptcy.  That  it  was  a  security 
given  for  the  protection  of  a  pre-existing  debt,  and  that  it  was  given 
within  four  months  immediately  preceding  the  filing  of  the  petition  in 
bankruptcy,  are  conceded  facts.  It  may  also  be  admitted  that  the 
bankrupt  was  insolvent  when  the  mortgage  was  made,  and  that  the 
creditors  had  then  reason  to  believe  he  was  insolvent. 

The  petition  in  bankruptcy  was  filed  on  the  22d  of  October,  1869. 
On  the  15th  of  May  next  preceding  that  date,  Bacheller,  the  bankrupt, 
who  was  indebted  to  Novelli  &  Co.  in  the  large  sum  of  $27,839  in  gold, 
conveyed  to  Turpin,  who  was  their  agent,  as  a  security  for  the  debt, 
the  building  described  in  the  subsequent  mortgage  of  July  31.  It  was 


SECT.  II.]  SAWYER   V.    TURPIN.  311 

a  frame  building,  erected  upon  leased  ground  ;  and  Bacheller  had,  there- 
fore, only  a  chattel  interest  in  it.  The  conveyance  was  by  a  bill  of  sale 
absolute  in  its  terms,  having  no  condition  or  defeasance  expressed  ;  but 
it  was  understood  by  the  parties  to  be  a  security  for  the  debt  due.  It 
was  in  substantial  legal  effect,  though  not  in  form,  a  mortgage.  Having 
been  executed  more  than  four  mouths  before  the  petition  in  bankruptcy 
was  filed,  there  is  nothing  in  the  case  to  show  that  it  was  invalid. 
True,  it  was  not  recorded  ;  and  it  may  be  doubted  whether  it  was 
admissible  to  record.  True,  no  possession  was  taken  under  it  by  the 
vendee  ;  but  for  neither  of  these  reasons  was  it  the  less  operative  be- 
tween the  parties.  It  might  not  have  been  a  protection  against  attach- 
ing creditors,  if  there  had  been  any ;  but  there  were  none.  It  was  in 
the  power  of  Turpin  to  put  it  on  record  any  day,  if  the  recording  acts 
apply  to  such  an  instrument ;  and  equally  within  his  power  to  take 
possession  of  the  property  at  any  time  before  other  rights  against  it 
had  accrued.  These  powers  were  conferred  by  the  instrument  itself, 
immediately  on  its  execution.  In  regard  to  chattel  mortgages,  the  re- 
cording statutes  of  Massachusetts,  enacted  in  1836,  provide  as  follows : 
"  No  mortgage  of  personal  property  hereafter  made  shall  be  valid 
against  any  other  person  than  the  parties  thereto,  unless  possession 
of  the  mortgaged  property  be  delivered  to  and  retained  by  the  mort- 
gagee, or  unless  the  mortgage  be  recorded  by  the  clerk  of  the  town 
where  the  mortgagor  resides."  Rev.  Stat.  473,  c.  74.  The  statute 
contains  a  clear  recognition  of  the  validity  of  an  unrecorded  chattel 
mortgage,  as  between  the  parties  to  it ;  though  no  possession  be  taken 
under  it.  And  the  General  Statutes  of  the  State,  enacted  in  1860  (Gen. 
Stat.  769,  c.  151),  contain  the  same  recognition.  Their  language  is 
the  following :  "  Mortgages  of  personal  property  shall  be  recorded  on 
the  records  of  the  town  where  the  mortgagor  resides  when  the  mortgage 
is  made,  and  on  the  records  of  the  city  or  town  in  which  he  then  prin- 
cipally transacts  his  business,  or  follows  his  trade  or  calling.  If  the 
mortgagor  resides  without  the  State,  his  mortgage  of  personal  property 
within  the  State,  when  the  mortgage  is  made,  shall  be  recorded  on  the 
records  of  the  city  or  town  where  the  property  then  is.  Unless  a  mort- 
gage! is  so  recorded,  or  the  property  mortgaged  is  delivered  to  and  re- 
tained by  the  mortgagee,  it  shall  not  be  valid  against  any  person,  other 
than  the  parties  thereto,  except  as  provided  in  the  following  section."  1 

1  "An  assignee  in  insolvency  la  not  one  of  the  parties  within  the  meaning  of  the 
statute."  Blanchard  v.  Cooke,  144  Mass.  207,  226.  But  if  an  unrecorded  mortgage 
is  not  actually  fraudulent,  "if  the  plaintiff  (mortgagee)  rightfully  took  possession  of 
the  goods  before  they  were  attached,  or  before  proceedings  in  insolvency  were  insti- 
tuted, and  retained  this  possession,  we  think  his  title  to  the  extent  of  his  interest  is 
good  against  the  assignee  in  insolvency.  .  .  .  But  the  plaintiff's  possession  must  be 
rightful  in  order  to  enable  him  successfully  to  assert  his  title  against  the  assignee.  If 
he  had  no  right  to  take  possession  when  he  took  it,  his  possession  cannot  avail  him. 
Our  construction  of  the  contract  is,  that  the  plaintiff  had  not  the  right  to  take  posses- 
sion unless  there  had  been  some  breach  of  the  contract  by  Cooke;  but  if  there  had 
been  a  substantial  breach,  that  the  plaintiff  had  this  right  while  the  default  rontiu- 


312  SAWYER   V.   TURPIN.  [CHAP.  IV. 

The  exception  extends  only  to  mortgage  contracts  of  bottoraiy,  or 
respondent  ia,  to  transfers,  assignments,  or  hypothecations  of  ships  or 
vessels,  and  to  transfers  in  mortgage  of  goods  at  sea  or  abroad. 
Neither  of  these  acts  prescribes  when  the  record  must  be  made,  or  the 
possession  be  taken  ;  but,  when  made,  the  instrument  takes  effect,  as 
against  third  persons  as  well  as  -between  the  parties,  from  the  time  of 
its  execution,  unless  intervening  rights  have  been  obtained.  In  Mitchell 
et  al.  v.  Black  et  al.,  6  Gray,  100,  it  was  ruled  by  the  Supreme  Court 
of  Massachusetts  that  one  who  had  taken  bills  of  sale  of  merchan- 
dise from  his  debtor  as  a  security  for  money  advanced,  and  who  had 
allowed  the  debtor  to  sell  portions  of  the  merchandise  in  the  usual 
course  of  his  business  as  if  he  were  the  owner  thereof,  might  take  pos- 
session of  it  any  time  in  order  to  secure  his  debt ;  and  that  such  taking 
of  possession,  though  at  a  time  when  the  debtor  was  known  by  himself 
and  the  creditor  to  be  insolvent,  was  effectual,  notwithstanding  the 
State  Insolvent  Law,  which  contained  provisions  very  like  those  of  the 
bankrupt  act.  The  court  held  unqualifiedly  that  the  bills  of  sale,  ab- 
solute as  they  were  in  terms,  though  in  fact  intended  only  as  a  security, 
and  though  unattended  by  possession  of  the  property,  and  though  not 
placed  upon  record,  vested  a  complete  title  in  the  creditor,  subject  only 
to  be  defeated  by  the  discharge  of  the  debt,  or  by  some  intervening 
right  acquired  before  the  possession  was  taken.  This  was  a  case  of 
bills  of  sale,  like  the  present,  not  a  case  of  a  technical  mortgage.  In 
speaking  of  the  registration  of  mortgages,  the  court  said  :  "  The  time 
when  the  record  shall  be  made  is  not  specifically  prescribed  by  the 
statute,  though  it  must  undoubtedly  precede  the  possession  by  others 
subsequently  acquiring  an  interest  in  the  mortgaged  property.  To 
prevent  it  from  passing  to  them,  it  will  be  sufficient  that  the  record  is 
made  at  any  time  before  such  possession  is  taken,  though  it  be  long 
after  the  execution  of  the  mortgage." l 

It  should  not  be  doubted,  then,  that  the  bill  of  sale  of  May  15,  1869, 
conveyed  to  Turpin  all  Bacheller's  interest  in  the  frame  building ;  that 
it  was  effective  for  the  purposes  for  which  it  was  made  ;  and,  no  other 
rights  having  intervened,  that  it  was  a  valid  securit3',  to  the  extent  of 
the  value  of  the  property,  for  the  debt  due  Novell!  &  Co.  on  the  31st 
of  July,  1869,  when  the  mortgage  impeached  by  the  bill  was  made.2 

ued."  Ibid.  227.  See  also  Bennett  v.  Bailey,  150  Mass.  257 ;  Bliss  v.  Crosier,  159 
Mass.  498  ;  Harriraan  v.  Wobnrn  Electric  Light  Co.,  163  Mass.  85;  Moors  v.  Reading, 
167  Mass.  322;  Drury  v.  Moors,  171  Mass.  252. 

1  The  time  for  recording  is  now  limited  in  Massachusetts  to  fifteen  days.    Rev. 
Laws,  c.  198,  §  1. 

2  The  Massachusetts  court  held  otherwise  in  Copelaud  v.  Barnes,  147  Mass.  388, 
which  was  similar  in  its  facts  to  Sawyer  v.  Turpin,  but  where  a  contrary  result  was 
reached.     On  page  390,  the  opinion  reads :  — 

"  The  delivery  of  the  bill  of  sale  did  not  constitute  a  mortgage,  even  though  sup- 
posed by  both  parties  to  be  such.  A  bill  of  sale  made  for  security,  even  though  run- 
ning directly  to  the  person  to  be  secured,  and  though  accompanied  by  delivery  of  the 
goods,  is  at  most  only  a  pledge,  and  not  a  mortgage.  Shaw  v.  Silloway,  145  Mass. 
503,  505;  Thompson  v.  Dolliver,  132  Mass.  103.  If  no  delivery  of  the  goods  is  made, 


SECT.  II.]  SAWYER   V.    TURPIN.  313 

The  mortgage  covered  the  same  property.  It  embraced  nothing  more. 
It  withdrew  nothing  from  the  control  of  the  bankrupt,  or  from  the 
reach  of  the  bankrupt's  creditors,  that  had  not  been  withdrawn  by  the 
bill  of  sale.  Giving  the  mortgage  in  lieu  of  the  bill  of  sale,  as  was 
done,  was,  therefore,  a  mere  exchange  in  the  form  of  the  security.  In 
no  sense  can  it  be  regarded  as  a  new  preference.  The  preference,  if 
any,  was  obtained  on  the  15th  of  Ma}',  when  the  bill  of  sale  was  given, 
more  than  four  months  before  the  petition  in  bankruptcy  was  filed.  It 
is  too  well  settled  to  require  discussion,  that  an  exchange  of  securities 
within  the  four  months  is  not  a  fraudulent  preference  within  the  mean- 
ing of  the  bankrupt  law,  even  when  the  creditor  and  the  debtor  know 
that  the  latter  is  insolvent,  if  the  security  given  up  is  a  valid  one  when 
the  exchange  is  made,  and  if  it  be  undoubtedly  of  equal  value  with  the 
security  substituted  for  it.  This  was  early  decided  with  reference  to 
the  Massachusetts  insolvent  laws  (Stevens  v.  Blanchard,  3  Gush.  169) ; 
and  the  same  thing  has  been  determined  with  reference  to  the  bank- 
rupt act.  Cook  v.  Tullis,  18  Wall.  340;  Clark  v.  Iselin,  21  Wall. 
360 ;  Watson  v.  Taylor,  id.  378  ;  and  Burnhisel  v.  Firman,  22  Wall. 
170.1  The  reason  is,  that  the  exchange  takes  nothing  away  from  the 
other  creditors.  It  is,  therefore,  not  in  conflict  with  the  thirty-fifth 
section  of  the  act,  the  purpose  of  which  is  to  secure  a  ratable  distribu- 
tion of  the  property  of  a  bankrupt  owned  by  him  at  the  time  of  his 
becoming  bankrupt,  and  undiininished  by  any  fraudulent  preferences 
given  within  four  months  prior  thereto. 

It  follows  that  the  mortgage  of  July  31  was  not  prohibited  by  the 
bankrupt  act  when  it  was  given,  and  that  it  was  valid.  Hence,  as  it 
was  recorded  on  the  seventeenth  day  of  September,  1869,  pursuant  to 
the  requisitions  of  the  State  law,  before  an}*  rights  of  the  assignees  in 
bankruptcy  accrued,  it  cannot  be  impeached  by  them. 

It  has  been  argued,  however,  on  behalf  of  the  assignees,  that  the  bill 
of  sale  of  May  15  was  an  insufficient  consideration  for  the  mortgage, 
because,  as  alleged,  there  was  an  agreement  between  Bacheller  and 
Turpin  that  it  should  not  be  recorded,  and  should  be  kept  secret.  If 
the  fact  were  as  alleged,  it  is  not  perceived  that  it  would  be  of  any 
importance ;  for  it  is  undeniable  that  the  bill  of  sale  rested  on  a  valu- 

it  can  be  no  more  than  an  agreement  for  a  pledge  or  mortgage.  Such  agreement, 
made  at  the  time  when  a  debt  is  contracted,  will  not  avail  to  protect  the  actual  pledge 
or  transfer  of  the  property,  when  made,  from  the  operation  of  the  statute  against 
preferences  by  an  insolvent  debtor.  The  statute  makes  no  exception  in  favor  of  secu- 
rities given  in  pursuance  of  a  previous  agreement,  but  declares  all  transfers  and  convey- 
ances void,  if  made  within  six  months,  and  under  the  circumstances  therein  stated. 
Pub.  Sts.  c.  157,  §  98;  Forbes  v.  Howe,  102  Mass.  427,  435;  Simpson  v.  Carleton,  1 
Allen,  109,  120;  Blodgett  v.  Hildreth,  11  Gush.  311." 

See  also  Mason  v.  Pomeroy,  151  Mass.  164,  173. 

1  Stewart  v.  Platt,  101  U.  S.  731  ;  Hallack  r.  Tritch,  17  B.  R.  293 ;  Reber  ».  Gundy, 
13  Fed.  Rep.  53,  ace.  See  also  Re  Little  River  Lumber  Co.,  92  Fed.  Rep.  585. 

But  transferring  security  to  a  creditor  of  greater  value  than  he  previously  had  is  a 
preference.  Waring  v.  Buchanan,  19  B.  R.  502  ;  lie  Jones.  100  Fed.  Rep.  781 ;  Chip- 
man  v.  McClellan.  1 59  Mass.  363. 


314  IN   RE    SHERIDAN.  [CHAP.  IV. 

able  consideration,  —  to  wit,  the  debt  of  827,839  in  gold,  due  to  Novell! 
&  Co. ;  and  it  is  not  denied  that  it  gave  to  Turpin  the  right  to  take 
possession  of  the  property  described  in  it.  It  was,  therefore,  a  valu- 
able security,  even  if  there  was  an  agreement  not  to  record  it.  If  it  be 
said  failure  to  put  it  on  record  enabled  the  debtor  to  maintain  a  credit 
which  he  ought  not  to  have  enjoyed,  the  answer  is  that  the  bankrupt 
act  was  not  intended  to  prevent  false  credits.  Its  purpose  is  ratable 
distribution.  But  the  evidence  does  not  justify  the  assertion  that  there 
was  in  fact  any  agreement  that  the  bill  of  sale  should  not  be  recorded, 
or  that  possession  should  not  be  taken  under  it. 

Upon  all  points,  therefore,  the  case  is  with  the  appellees^  and 
the  decree  of  the  Circuit  Court  must  be  affirmed. 


IN  RE   SHERIDAN. 

DISTRICT  COURT  FOR  THE  EASTERN  DISTRICT  OF  PENNSYLVANIA, 
DECEMBER  16,  1899. 

[Reported  in  9&  Federal  Reporter,  406.] 

IN  bankruptcy.  The  referee  in  bankruptcy  found  that  a  pledge  of 
personal  property  by  the  bankrupt  to  one  of  his  creditors  was  an  unlaw- 
ful preference  under  the  bankruptcy  act,  and  made  an  order  requiring 
the  creditor,  who  had  sold  the  goods  pledged,  to  pay  over  the  proceeds 
to  the  trustee  in  bankruptc}*.  The  case  is  now  before  the  court  on  the 
creditor's  exceptions  to  such  decision  of  the  referee. 

John  K.  Kane,  for  exceptant. 

Greenwald  &  Mayer  and  Charles  Biddle,  for  certain  creditors. 

McPHERSON,  District  Judge.  The  exceptant  relies  on  Ex  parte 
Potts,  Fed.  Cas.  No.  11,344,  but  an  examination  of  that  case  will  show 
that  the  decision  was  upon  a  different  state  of  facts.  One  question, 
there  was  whether  a  pledge  actually  made  was  fraudulent ;  and  it  ap- 
pc*ared  that  the  alleged  bankrupts,  when  they  were  admittedlj*  solvent, 
had  assigned  to  a  creditor,  as  collateral  security  for  advances,  several 
policies  of  insurance  and  bills  of  lading  upon  a  vessel  and  cargo  then 
at  sea.  Under  such  circumstances,  it  was  correctly  held  that  the  trans- 
fer was  not  in  fraud  of  creditors.  The  assignment  of  the  policies  was 
a  completed  transfer  of  the  debtor's  interest  in  those  instruments,  and 
the  assignment  of  the  bills  of  lading  transferred  the  title  to  the  property 
therein  described,  without  an}'  further  act.  As  to  almost  all  the  prop- 
erty then  under  consideration,  therefore,  the  transaction  had  been  fully 
executed.  One  policy  or  one  bill  of  lading  was  apparentl}'  not  trans- 
ferred until  May,  when  the  alleged  bankrupts  had  become  "involved  n 
(there  was  no  averment  of  insolvenc.y  in  the  petition) ;  but  as  the  last 
advance  by  the  creditor  had  been  made  in  March,  in  pursuance  of  an 


SECT.  II.]  IN   RE   SHERIDAN.  315 

agreement  made  in  February,  the  court  was  clearly  right  in  holding 
that  no  part  of  the  transaction  was  fraudulent.  No  question  of  pref- 
erence arose,  whereas  here  the  question  is  one  of  preference  simply. 
The  goods  here  were  never  actuall}'  pledged  until  the  exceptant,  for 
the  first  time,  took  them  into  his  possession  a  few  da}'s  before  the  peti- 
tion was  filed.  Before  that  time  there  was  a  mere  agreement  to 
pledge.  The  goods  were  never  delivered  to  the  exceptant,  nor  (assum- 
ing, for  present  purposes,  that  this  would  have  been  good  against  the 
other  creditors)  were  they  even  set  apart  and  continuously  treated  as 
his  propert}*.  Under  the  facts  proved,  the  pledge  was  not  completed 
until  the  date  of  removal.  Lucketts  v.  Townsend,  49  Am.  Dec.  730, 
note.  This  being  so,  the  exceptant's  title  attached  upon  that  date,  and 
the  transfer  created  a  preference  in  violation  of  the  act. 

The  exceptions  to  the  finding  of  the  referee  are  overruled,  and  his 
order  directing  the  exceptant  to  pay  to  the  trustee  the  money  received 
from  the  sale  of  the  goods  in  question  is  approved.1 

i  Casey  v.  Cavaroc,  96  U.  S.  467 ;  Nisbit  v.  Macon  Bank,  12  Fed.  686;  Re  Kling- 
man,  101  Fed.  691 ;  Security  Co.  v.  Hand,  143  Fed.  32  (C.  C.  A.) ;  Re  Milbourne  Mills 
Co.,  172  Fed.  177  (C.  C.  A.) ;  Hitchcock  v.  Hassett,  71  Cal.  331 ;  City  Ins.  Co.  v.  Olm- 
sted,  33  Conn.  476 ;  Copeland  v.  Barnes,  147  Mass.  388  ;  Goodrich  v.  Dore,  194  Mass. 
493 ;  Rowell  v.  Claggett,  69  N.  H.  201,  ace.  Martin  v.  Reid,  11  C.  B.  (N.  8.)  730 ;  Sabin 
v.  Pond,  98  Fed.  974,  contra.  See  also  Hook  v.  Ayers,  80  Fed.  978  (C.  C.  A.) ;  Hunt- 
ington  v.  Sherman,  60  Conn.  463, 467  ;  Keiser  v.  Topping,  72  111.  226 ;  Tuttle  v.  Robin- 
son, 78  111.  332. 

An  agreement  made  for  value  to  mortgage  personal  property  sufficiently  specified 
for  identification  has  been  held  to  give  an  equitable  lien.  Holroyd  v.  Marshall,  10  H. 
L.  C.  191 ;  Collyer  v.  Isaacs,  19  Ch.  I).  351 ;  Tailby  v.  Official  Receiver,  13  A.  C.  523 ; 
Pennock  v.  Coe,  23  How.  117;  Butt  v.  Ellett,  19  Wall.  544;  Beall  v.  White,  94  U.  S. 
382 ;  Hurley  v.  Atchison,  &c.  R.  Co.,  213  U.  S.  126 ;  Mitchell  v.  Winslow,  2  Story,  630, 
644 ;  Brett  v.  Carter,  2  Low.  458. 

And  so,  in  many  states  in  America.  But  even  though  the  existence  of  a  lien  be- 
tween mortgagor  and  mortgagee  is  admitted,  mortgages  of  future  chattel  property  of 
which  the  mortgagee  is  in  possession  are  in  many  states  held  invalid  against  an  attach- 
ment or  levy  by  creditors,  especially  if  the  mortgagor  is  given  power  to  withdraw 
property  from  the  mortgage  and  substitute  other  property.  Christian  &  Craft 
Co.  v.  Michael,  121  Ala.  84;  Walker  v.  Vaughn,  33  Conn.  577;  American  Surety 
Co.  v.  Worcester  Cycle  Co.,  100  Fed.  40  (Conn.);  Gregg  v.  Sanford,  24  111.  17; 
Pinkstaff  v.  Cochran,  58  111.  App.  72;  Fisher  v.  Syfers,  109  Ind.  514;  T.  B. 
Townsend  Co.  v.  Allen,  62  Kan.  311 ;  Loth  v.  Carty,  85  Ky.  591 ;  Manly  v.  Bitzer,  91 
Ky.  596,  598;  Griffith  v.  Douglass,  73  Me.  532  (cf.  Sawyer  v.  Long,  86  Me.  541); 
Cooke  v.  Blanchard,  144  Mass.  207;  Moors  v.  Reading,  167  Mass.  322;  Tatman  v. 
Humphrey,  184  Mass.  361  ;  Brown  v.  Wiggin,  16  N.  H  312;  Gardner  t;.  McEwen, 
19  N.  Y.  123;  Rochester  Distilling  Co.  v  Rasey,  142  N.  Y.  570;  Re  Marine  Con- 
struction Co.,  14  Am.  B.  Rep.  466  (N.  Y.);  Zartman  v.  First  Nat.  Bank,  96  N.  Y. 
Supp.  633  (Sup.  Ct.  App.  Div.)  (cf.  lie  Sentenne  &  Green  Co.,  120  Fed.  436) ;  Fran- 
cisco t'.  Ryan,  54  Oh.  St.  307.  See  also  Hitchcock  v.  Hassett,  71  Cal.  331 ;  Rowell  v. 
Claggett,  69  N.  H.  201  ;  Fisher  v.  Kelly,  30  Ore.  1  ;  Girard  Trust  Co.  v.  Mellor,  156 
Pa.  579, 590  (cf.  Collins's  App.,  107  Pa.  590) ;  Moore  v.  Wood,  61  S.  W.  Rep.  1063  (Tenn. 
Ch.);  Wilber  v.  Kray,  73  Tex.  533;  McKibbon  ".  Brigham,  18  Utah,  78;  Hughes  v. 
Epling,  93  Va.  424;  burr  v.  Wildish,  108  Wis.  401 ;  also  Civ.  Code,  La.,  §  3308. 

In  other  states,  however,  the  contrary  is  held.  Hughes  v.  Wheeler,  66  la.  641  (good 
against  a  purchaser  from  the  mortgagor) ;  Riddle  i>.  Dow,  98  la.  7  ;  Hogau  v.  Atlantic 
Elevator  Co.,  66  Minn.  344  (good  against  a  purchaser) ;  Evcrman  v.  Robb,  52  Miss. 
653;  Cumberland  Bank  v.  Bridgeton,  57  N.  J.  Eq.  231,  240;  Stoll  v.  Sibson,  65  N.  J. 


316  NATIONAL   CITY   BANK  V.   HOTCHKISS.  [CHAP.  IV. 


NATIONAL  CITY  BANK  v.  HOTCHKISS. 

SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  17-NovEMBER  3, 

1913. 

[Reported  in  231  United  States,  50.] 

y  MR.  JUSTICE  HOLMES  delivered  the  opinion  of  the  court.1 
*  This  is  a  suit  to  j^Qoyera  preference.  The  case  arose  upon  what  is 
known  as  a  clearance  loan!  StockBrokers  need  large  sums  to  pay  for 
stocks  which  they  receive  each  day;  and  as  the  stocks  must  be  paid 
for  before  they  are  received  and  can  be  pledged,  the  necessary  funds 
are  advanced  by  the  banks  on  the  understanding  that  they  are  to  be 
returned  later  on  the  same  day.  Perhaps  such  a  general  course  of 
dealing  might  be  arranged  so  as  to  give  a  lien  on  the  loan  or  its  pro- 
ceeds until  payment ;  but  the  issue  in  this  case  is  whether  such  a  lien 
has  in  fact  been  created. 

Such  a  clearance  loan  was  made  to  the  bankrupts,  and  not  being 
fully  repaid,  officers  of  the  bank  demanded  payment  or  securities  to 
make  good  the  obligation.  They  were  told  that  the  brokers  had  sus- 
pended and  that  a  petition  in  bankruptcy  would  be  filed ;  but  after 
some  argument  the  securities  in  question  were  delivered.  Some  of 
them  bore  no  relation  to  the  loan,  but  it  may  be  assumed  for  purposes 
of  argument  that  most  had  been  released  by  the  money  obtained  from 
the  bank. 

In  dealing  with  transactions  of  this  kind  we  may  go  far  in  giving 
them  any  form  that  will  carry  out  the  mutually  understood  intent. 
Sexton  v.  Kessler,  225  U.  S.  90,  96,  97.  But  if  the  intent  was  doubt- 
ful or  inconsistent  with  the  legal  effect  of  dominant  facts,  it  must  fail. 
In  the  present  case  it  is  agreed  that  it  was  expected  and  understood 

Eq.  552 ;  Parker  v.  Jacobs,  14  S.  C.  112  ;  Hirshkind  v.  Israel,  18  S.  C.  157  (good  against 
a  purchaser);  First  Bank  r.  Turnbull,  32  Gratt.  (Va.)  695;  Horner-Gaylord  Co.  v. 
Fawcett,  50  W.  Va.  487.  See  also  Etheridge  v.  Sperry,  139  U.  S.  266;  Allen  v.  Wind- 
ham  Mfg.  Co.,  87  Fed.  786 ;  Re  Hull,  115  Fed.  858  ;  Egan  Bank  v.  Rice,  119  Fed.  107  ; 
Re  Ball,  123  Fed.  164;  Sillers  v.  Lester,  48  Miss.  513.  Mortgages  of  future  property 
are  expressly  authorized  by  statute  in  California,  C.  C.  §  2883 ;  Idaho,  C.  C.  §  2791 ; 
New  Hampshire,  Laws  of  1901,  c.  66 ;  North  Dakota,  C.  C.  §  4705 ;  Wyoming,  Rev. 
Stat.  (1899)  §  2805.  In  Maine  and  Michigan  the  mortgage  is  good  against  creditors  if 
the  future  property  is  taken  in  substitution  for  existing  property.  Sawyer  v.  Long, 
86  Me.  541 ;  Eddy  v.  McCall,  71  Mich.  101  ;  Ferguson  j>.  Wilson,  122  Mich.  97.  So 
in  Georgia  by  statute,  Code,  Sec.  1954.  See  further,  19  Harv.  L.  Rev.  557. 

Payment  in  advance  for  goods  to  be  manufactured  was  held  to  give  an  equitable  lien 
as  the  goods  were  manufactured  in  Scammon  v.  Bowers,  1  Hask.  496.  See  also  Ham- 
ilton v.  Nat.  Loan  Bank,  3  Dill.  230;  Post  v.  Corbin,  5  B.  R.  11. 

An  agreement  on  the  making  of  a  mortgage  that  insurance  should  be  kept  up,  and 
the  loss  made  payable  to  the  mortgagee,  was  held  to  give  the  latter  an  equitable  lien 
on  the  proceeds  of  the  policies,  though  in  fact  neither  made  payable  or  delivered  to 
him.  Re  Wittenberg  Co.,  108  Fed.  593.  See  also  Re  Little  River  Lumber  Co.,  92 
Fed.  585. 

1  The  statement  of  facts  has  been  abbreviated  and  a  portion  of  the  opinion 
omitted. 


BECT.  II.]  NATIONAL   CITY  BANK   V.   HOTCHKISS.  317 

that  no  portion  of  the  clearance  loan  was  to  be  used  for  any  purpose 
other  than  to  clear  securities.  But  on  the  other  hand,  by  consent  of 
the  bank  as  it  seems,  the  loan  was  put  into  the  general  deposit  account, 
which  was  drawn  upon  for  general  purposes,  at  least  to  the  extent  of 
the  balance  above  the  loan ;  the  securities  released  were  not  kept  sep- 
arate but  were  used  like  any  others ;  and  no  separate  account  was  kept 
of  money  received  from  deliveries  of  stock  so  released.  What  hap- 
pened as  between  these  parties  was  simply  that  all  monies  received  in 
the  course  of  the  day  from  whatever  source  went  into  the  firm's  deposit 
account  with  the  bank.  So  that,  even  if  we  take  it,  as  a  corollary  of 
what  was  understood,  that  the  use  of  the  clearance  loan  was  expected 
to  enable  the  firm  to  repay  the  loan,  it  does  not  appear  to  have  been 
expected  that  the  proceeds  should  be  appropriated  specifically  to  that 
end,  but  simply  that  the  addition  of  such  proceeds  to  the  general 
funds  of  the  firm  would  enable  the  latter  to  pay  within  the  tune 
allowed. 

A  trust  cannot  be  established  in  an  aliquot  share  of  a  man's  whole 
property,  as  distinguished  from  a  particular  fund,  by  showing  that 
trust  monies  have  gone  into  it.  On  similar  principles  a  lien  cannot  be 
asserted  upon  a  fund  in  a  borrower's  hands,  which  at  an  earlier  stage 
might  have  been  subject  to  it,  if  by  consent  of  the  claimant  it  has 
become  a  part  of  the  borrower's  general  estate.  But  that  was  the 
result  of  the  dealings  between  these  parties,  and  it  cannot  be  done 
away  with  by  a  wish  or  intention,  if  such  there  was,  that  alongside  of 
this  permitted  freedom  of  dealing  on  the  part  of  the  bankrupts,  the 
security  of  the  bank  should  persist.  It  is  not  like  the  case  of  property 
wrongfully  mingled  with  general  funds  and  afterwards  traced.  All  that 
the  parties  agreed  either  expressly  or  by  implication  was  that  the 
debt  incurred  at  ten  o'clock  should  be  paid  by  three.  Some  banks 
seem  to  have  required  the  dealing  to  be  conducted  on  the  footing  of  a 
fund  identified  and  subject  to  a  trust  at  every  step,  but  between  these 
parties  there  was  no  attempt  to  follow  a  specific  fund  through  a  series 
of  changes  until  it  was  returned.  See  Dillon  v.  Barnard,  21  Wall.  430. 

As  all  trace  of  the  bank's  money  was  lost  when  it  entered  the  stream 
of  the  firm's  general  property  there  can  be  no  right  of  subrogation. 
Neither  can  a  claim  be  upheld  on  the  ground  that  there  was  no  diminu- 
tion of  the  bankrupt's  assets,  or  that  the  transaction  should  be  re- 
garded as  instantaneous  and  one.  The  consent  to  become  a  general 
creditor  for  an  hour,  that  was  imported,  even  if  not  intended  to  have 
that  effect,  by  the  liberty  allowed  to  the  firm,  broke  the  continuity  and 
established  the  loan  as  part  of  the  assets.  No  doubt  many  general 
creditors  have  increased  a  bankrupt's  estate  by  their  advances,  but 
they  have  lost  the  right  to  take  them  back.  Time  sometimes  can  be 
disregarded  when  it  is  insignificant  But  in  this  case  half  the  time  be- 
tween the  loan  and  the  transfer  of  securities  sufficed  to  change  the 
position  of  the  borrowers  from  a  fortune  of  half  a  million  to  a  deficit 
of  double  that  amount. 


318  SAWYER  V.   LEVY.  [CHAP.  IV. 

In  both  Gorman  v.  Littlefield,  229  U.  S.  19,  and  Richardson  v. 
Shaw,  209  U.  S.  365,  in  addition  to  the  personality  of  the  holder  there 
was  also  a  specific  stock,  which  identified  the  fund  relied  upon  and 
separated  it  from  the  general  mass  of  the  estate.  Hurley  v.  Atchison, 
Topeka  &  Santa  Fe  Ry.  Co.,  213  U.  S.  126,  stood  on  the  peculiar 
facts  of  the  case,  which  were  held  to  point  to  an  identified  res  and 
give  an  immediate  claim  against  it.  The  case  established  no  general 
proposition  contrary  to  what  we  now  decide.1 


SECTION  II.   (continued). 

(»')  COLLATERAL  EFFECTS  OF  PREFERENCE. 

'  i 

SAWYER   y.  LEVY. 

SUPREME  JUDICIAL  COURT  OP  MAJ^ACHUSETTSJ  SEPTEMBER  26-OcroBER 

18,  1894. 

[Reported  in  162  Massachusetts,  190.] 

itcsiEE  process.  Writ  dated  April  22,  1893.  T.  L.  Haynes, 
summoned  as  trustee,  answered  that  at  the  time  of  the  service  of  the 
writ  upon  him  he  had  certain  funds  in  his  hands  due  the  defendants ; 
and  that  prior  to  the  service  of  the  writ  he  had  received  notice  that  the 
funds  had  been  assigned  to  one  Aaron  Slater,  who  demanded  payment 
thereof.  Slater  appeared  as  claimant  of  the  funds  in  the  hands  of  the 
trustee,  under  the  assignment. 

At  the  trial  in  the  Superior  Court,  before  MASON,  C.  J. ,  without 
a  jury,  Slater  testified  that,  at  the  time  of  making  the  assignment,  the 
defendants  were  indebted  to  him  in  a  large  sum  ;  and  that  the  accounts 
transferred  to  him  by  the  assignment,  including  that  due  from  the 
trustee,  being  insufficient  to  secure  him  for  said  indebtedness,  the 
defendants,  who  were  doing  business  in  the  city  of  New  York,  con- 
fessed judgment  to  him  for  the  difference  between  the  amount  of  their 
indebtedness  and  the  amount  due  on  the  accounts  so  transferred. 

The  judgment  having  been  confessed  on  the  same  day  that  the 
assignment  was  made,  no  general  assignment  for  the  benefit  of  creditors 
was  made  by  the  defendants. 

The  plaintiffs  requested  the  judge  to  rule  that  the  assignment  was 
invalid  against  the  attachment  made  by  the  plaintiffs  upon  their  writ.  • 

The  judge  declined  to  rule  as  requested  ;  found  for  the  adverse  claim- 
ant; ordered  that  the  trustee  be  discharged  with  costs  to  both  the 
trustee  and  the  claimant ;  and  found  specialty  that  the  assignment  by 
the  defendants  to  the  claimant  was  in  consideration  of  a  bona  fide 

1  Mechanics  &  Metals  Nat.  Bank  v.  Ernst,  231  U.  S.  60,  ace. 


SECT.  II.]  FOX   V.   GARDNER.  319 

existing  debt  to  the  full  amount  thereof,  and,  at  the  time  of  the 
assignment,  the  defendants  were  in  an  insolvent  condition,  and  the 
claimant  had  knowledge  of  such  condition.  The  plaintiffs  alleged 
exceptions. 

F.  H.  Oillett  &  W.  W.  Me  Clench,  for  the  plaintiffs. 

T.  M.  Brown,  for  Aaron  Slater.  ^ 

ALLEN,  J.  The  assignment  by  the  defendants  to  Safer  was  no  doubt 
a  preference,  which  might  be  avoided  by  assignees  in  insolvenc}7  if  the 
defendants  were  subject  to  our  insolvent  laws.  Pub.  Sts.  c.  157,  §  96. 
But  no  proceedings  in  insolvency  could  be  taken  against  them  by 
reason  of  their  non-residence.  A  preference  given  by  an  insolvent 
debtor  to  a  bona  fide  creditor  cannot  be  avoided  by  an  attaching 
creditor,  whether  the  form  of  preference  which  is  adopted  is  a  general 
assignment  for  the  benefit  of  such  creditors  as  should  assent  thereto,  or 
an  assignment  for  the  benefit  of  certain  specified  creditor  or  an  assign- 
ment directly  to  a  single  creditor.  Otherwise,  it  would  simply  amount 
to  giving  a  preference  to  the  attaching  creditor,  instead  of  to  the 
creditor  or  creditors  selected  by  the  debtor.  This  has  often  been 
adjudged.  National  Mechanics  &  Traders'  Bank  v.  Eagle  Sugar 
Refinery,  109  Mass.  38  ;  Banfield  v.  Whipple,  14  Allen,  13  ;  Train  v. 
Kendall,  137  Mass.  366  ;  First  National  Bank  of  Easton  v.  Smith,  133 
Mass.  26.  Exceptions  overruled.1 


FOX  v.   GARDNER.  ^  y 

SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  TERM,  1874.  '  ' 


[Reported  in  21   Wallace,  475.] 

ERROR  to  the  Circuit  Court  for  the  Western  District  of  Wisconsin, 
the  case  being  thus  :  — 

Fox  &  Howard  had  contracted  with  a  railroad  company  to  make 
its  railroad,  and  on  the  4th  of  October,  1870,  employed  one  N.  Young 
as  a  contractor  (excavator)  under  them.  By  the  terms  of  the  contract 
with  Young,  Fox  &  Howard  were  to  pay  him,  on  the  15th  of  Decem- 
ber, 1870,  a  certain  sum  per  cubic  yard  of  earth  excavated  ;  payments 
to  be  made  as  follows  :  — 

"To  the  laborers  employed  in  doing  said  work  the  amount  ascer- 
tained to  be  due  to  them  for  their  services  and  the  balance  to  the  said 
Young." 

Young  finished  his  work  November  24,  1870,  and  being  in  debt  to 

i  Priest  v.  Brown,  100  Cal.  626;  Trustees  v.  Jarvis,  32  Conn.  412;  Grecnthal 
v.  Lincoln,  67  Conn.  372  ;  Keane  v.  Goldsmith,  14  La.  Ann.  349;  Triebert  v.  Burgess, 
11  Md.  452;  Traders'  Nat.  Bank  v.  Steere,  165  Mass.  389,  ace.  See  also  Bartlett  u 
Walker,  65  Vt.  594. 


320  FOX   V.    GARDNER.  [CHAP.  IV. 

one  Burrows,  as  also  to  three  other  persons  severally,  to  the  extent 
of  83,692,  gave  to  him  and  them  drafts  on  Fox  &  Howard  for  differ- 
ent amounts,  in  all  making  that  sum,  payable  December  15,  1870. 
Fox  &  Howard  accepted  the  drafts  in  this  form:  — 

"  Accepted  and  promised  to  be  paid  out  of  any  money  due  N. 
Young,  in  our  hands,  after  payment  of  laborer's  lien  and  orders  previ- 
ously accepted.  Done  this  1st  day  of  December,  at  eight  o'clock  P.M. 

"  Fox  &  HOWARD." 

About  the  same  time  various  laborers  under  Young,  and  thus  cred- 
itors of  Young,  also  gave  drafts  (in  all  for  8502),  .on  him  in  favor  of 
Burrows,  who  cashed  or  discounted  them,  and  by  Young's  directions 
Fox  &  Howard  charged  him,  Young,  with  the  amount  of  the  drafts  as 
cash  paid  to  him  ;  they  agreeing,  at  the  same  time,  with  Burrows,  to 
pay  to  him  the  amount  of  the  drafts,  but  not  actually  paying  them. 

When  Young  gave  these  different  drafts  Le  was  insolvent ;  and  on 
the  7th  of  January,  1871,  a  petition  in  bankruptcy  was  filed  against 
him,  on  which  he  was,  upon  the  same  day,  decreed  a  bankrupt. 

One  Gardner  being  appointed  his  assignee  brought  this  suit  in 
the  court  below,  September  12th,  1872,  against  Fox  &  Howard,  to 
compel  the  payment  to  him  of  what  they  had  owed  Young,  and  had 
agreed  to  pay  to  Burrows  and  the  others,  in  the  manner  already  stated. 
The  ground  of  the  suit  was  of  course  that  the  transactions  were  void 
under  the  thirty-fifth  section  of  the  bankrupt  act,  quoted  supra,  365. 

The  court  charged  the  jury  that  before  the  plaintiff  could  recover 
he  was  bound,  under  the  thirtj'-fifth  section  of  the  act,  to  show:  1st. 
That  Young  was  insolvent  when  the  drafts  were  given.  2d.  That 
Fox  &  Howard  had  reasonable  cause  to  believe  him  insolvent.  3d. 
That  the  person  or  persons,  in  snch  case  respectivel}',  to  whom  the 
drafts  were  given,  had  reasonable  cause  to  believe  Young  insolvent. 
And  further,  that  Fox  &  Howard  had  reasonable  cause  to  believe  that 
the  person  or  persons  to  whom  they  were  so  given  had,  when  they 
took  the  same,  reasonable  cause  to  believe  Young-  insolvent.  But 
that  if  he  satisfied  the  jury,  by  the  evidence,  of  all  these  things,  the 
acceptances  of  Fox  &  Howard  were  void,  and  did  not  amount  to  pay- 
ments in  the  action. 

Under  these  instructions  the  jury  found  for  the  assignee  the  amounts 
claimed,  and  Fox  &  Howard  brought  the  case  here  on  exceptions  to 
the  charge. 

Mr.  R.  T.  Merrick  (with  whom  was  Mr.  B.  G.  Caulfield},  for  the 
plaintiff  in  error. 

The  coui-t  below  was  mistaken  in  its  construction  of  the  thirty-fifth 
section  of  the  bankrupt  act.  That  section  does  not  authorize  suits 
by  an  assignee  against  debtors  of  the  bankrupt  who  have  discharged 
their  debts  to  him,  or  paid  money  to  other  persons  for  his  use,  within 
the  period  of  four  or  six  months  specified  in  the  act.  It  only  author- 
izes suits  against  such  creditors  of  the  bankrupt  as  have  fraudulently 


SECT.  II.]  FOX   V.   GARDNER.  321 

received  such  payments.     Only  the  parties  benefited  by  a  fraudulent 
preference  under  the  bankrupt  act  are  liable  to  the  assignee. 

The  doctrine  of  the  District  Court  leads  to  the  most  'disastrous  con* 
sequences.  For  if  a  debtor  cannot  respect  the  orders  of  a  man  in 
embarrassed  circumstances  except  at  his  peril,  then  he  will  necessarily 
precipitate  the  condition  of  insolvency  and  bankruptcy  which  a  differ- 
ent course  might  have  prevented.  It  is  believed  that  this  doctrine  is 
contrary  to  common  justice  and  the  established  principles  of  law. 

As  respects  Fox  &  Howard,  the  verdict  and  judgment  below  were 
very  hard.  If  affirmed  here,  those  persons  have  to  pay  the  same  debt 
twice ;  once  to  Burrows  and  the  other  holders  of  their  acceptances, 
and  again  to  the  assignee  in  bankruptcy. 

Mr.  W.  F.  Vilas,  contra. 

Mr.  Justice  HUNT  delivered  the  opinion  of  the  court. 

The  thirty-fifth  section  of  the  bankrupt  act  provides  that  a  trans- 
action like  the  one  under  consideration  here  "  shall  be  void,  and  the 
assignee  may  recover  the  property  or  the  value  of  it  from  the  person 
so  receiving  it  or  so  to  be  benefited." 

The  language  of  the  statute  authorizing  the  assignee  "  to  recover 
the  property,  or  the  value  of  it,  from  the  person  so  receiving  it  or  so 
to  be  benefited,"  does  not  create  a  qualification  or  limitation  of  power. 
There  is  no  implication  that  the  party  paying  is  not  also  liable.  The 
words  are  those  of  caution  merely,  and  give  the  assignee  no  power 
that  he  would  not  possess  if  they  had  been  omitted  from  the  statute. 
In  the  present  case  the  property  or  value  attempted  to  be  transferred 
belonged  originally  to  the  bankrupt.  On  the  adjudication  of  bank- 
ruptcy the  possession  and  ownership  of  the  same  were  transferred  to 
the  assignee.1  The  attempted  transfer  by  the  bankrupt  was  fraudulent 
and  void.  It  follows  logically  that  the  debtor  yet  holds  it  for  the  as- 
signee, and  that  the  assignee  may  sue  him  for  its  recovery.2 

Upon  principle  there  would  seem  to  be  scarcely  room  for  doubt  upon 
the  point  before  us.  The  pretended  payment  or  transfer  or  substitution 
by  the  debtor  of  the  bankrupt  was  in  fraud  of  the  act  and  illegal.  It 
was  a  transaction  expressly  forbidden  by  the  statute.  The  jury  found 
that  the  insolvency  of  Young  was  known  to  Fox  &  Howard,  and  to 
the  creditors  by  whom  the  drafts  were  taken  at  the  time  they  were 
taken  ;  that  they  were  given  by  the  bankrupt  with  intent  to  create  for- 
bidden preferences,  and  that  they  were  accepted  by  Fox  &  Howard  in 
fraud  of  the  act.  This  is  a  transaction  expressly  condemned  by  the 
statute. 

It  amounts  simply  to  this:  the  debtor  of  the  bankrupt  seeks  to 
protect  himself  against  an  admitted  debt  by  pleading  a  payment  or 
substitution  which  was  in  fraud  of  the  bankrupt  act,  and,  therefore, 
void.  The  proposition  carries  its  refutation  on  its  face.  Fox  & 
Howard  were  indebted  to  the  bankrupt  and  can  only  discharge  them- 

1  Section  14  of  the  bankrupt  act. 

*  See  Bolander  v.  Gentry,  36  Cal.  105 ;  Hanson  v.  Herrick,  100  Mass.  32a 


322  FOX   V.    GARDNER  [CHAP.  IV. 

selves  b}'  a  payment  or  satisfaction  which  the  law  will  sanction.  A 
payment  or  transfer  condemned  by  the  express  terms  of  the  bankrupt 
act  cannot  protect  them. 

It  is  to  be  observed,  also,  that  when  the  bankruptcy  proceedings 
were  begun  Fox  &  Howard  had  never,  in  fact,  paid  to  Burrows  and 
his  associates  the  amount  of  the  drafts  accepted  by  them.  They  had 
simply  promised  to  pay  them,  if  there  should  prove  upon  settlement 
of  their  accounts  with  the  bankrupt  to  be  so  much  money  due  to 
him.  This  presents  them  in  a  still  less  favorable  condition.  They 
owe  money  to  the  bankrupt.  They  are  sued  for  it  by  his  assignee  in 
bankruptcy.  As  a  defence  they  allege  that  they  have  made  an  agree- 
ment with  Burrows  and  others,  with  the  assent  of  the  bankrupt,  to 
pay  the  amount  of  the  debt  to  them.  They  allege  an  agreement 
merely.  This  agreement  has  already  been  shown  to  be  illegal.  The 
assignee,  representing  the  creditors  as  well  as  the  bankrupt,  is  author- 
ized  to  set  up  such  illegality.  The  bankrupt  perhaps  could  take  no 
action  to  avoid  this  agreement,  but  his  assignee  has  undoubted  au- 
thority to  do  so.  When  the  assignee  sets  up  this  illegalit}'  and  sustains 
it  by  proof  of  the  facts  referred  to,  the  whole  foundation  of  the  defence 
falls. 

It  is  well  settled  that  a  debtor  may  pa\r  a  just  debt  to  his  creditor 
at  any  time  before  proceedings  in  bankruptcy  are  taken.  It  is  also 
true  that  a  valid  agreement  to  substitute  another  person  as  creditor 
may  be  made,  and  may  be  pleaded  as  a  discharge  of  the  debt  in  the 
nature  of  payment.  It  is  not,  however,  payment  in  fact,  and  is  bind- 
ing only  when  the  contract  is  fair  and  honest  and  binding  upon  the 
first  creditor. 

The  right  of  an  insolvent  person  before  proceedings  are  commenced 
against  him  to  pay  a  just  debt,  honestly  to  sell  property  for  which  a 
just  equivalent  is  received,  to  borrow  money  and  give  a  valid  security 
therefor,  are  all  recognized  by  the  bankrupt  act,  and  all  depend  upon 
the  same  principle.  In  each  case  the  transaction  must  be  honest,  free 
from  all  intent  to  defraud  or  delay  creditors,  or  to  give  a  preference, 
or  to  impair  the  estate.1 

If  there  is  fraud,  trickery,  or  intent  to  delay  or  to  prefer  one  creditor 
over  others,  the  transaction  cannot  stand. 

It  is  urged  that  Fox  &  Howard  are  liable  upon  the  drafts  to  the 
creditors  of  Young,  in  whose  favor  the  acceptances  were  given. 
Should  this  be  so  it  would  but  add  another  to  that  large  class  of  cases 
in  which  persons  endeavoring  to  defraud  others  are  caught  in  their 
own  devices.  The  law  looks  with  no  particular  favor  on  this  class  of 
sufferers. 

In  the  present  case,  however,  there  seems  to  be  no  such  difficulty. 
The  acceptances  were  a  part  of  an  illegal  contract,  and  no  action  will 
lie  upon  them  in  favor  of  those  making  claim  to  them.  They  are 
guilty  parties  to  the  transaction  and  can  maintain  no  action  to  enforce 

1  See  Cook  ».  Tullis,  18  Wall.  332  :  Tiffany  v.  Boatman's  Institution,  Ib.  376. 


SECT.  II. J  KEPPEL   V.   TIFFIN   SAVINGS   BANK.  323 

it.1  The  law  leaves  these  parties  where  it  finds  them,  giving  aid  to 
neither.  The  drafts  cannot  pass  into  the  hands  of  bonafide  holders, 
as  by  the  terms  of  the  acceptances  the}'  are  to  remain  in  the  possession 
of  Fox  &  Howard  until  the}*  can  be  paid  by  authority  of  law.  When 
Fox  &  Howard  pay  to  the  assignee  the  debt  due  from  them  to  Young 
they  will  pa}-  it  to  the  party  entitled  to  receive  it  and  will  have  dis- 
charged their  liability.  Judgment  affirmed* 


KEPPEL  v.  TIFFIN  SAVINGS  BANK. 

SUPREME  COURT  OF  THE  UNITED  STATES,  JANUARY  6-ApRiL  3,  1905. 
[Reported  in  197  United  States,  356.] 

CHARLES  A.  GOETZ  became  a  voluntary  bankrupt  on  October  12, 
1900.  George  B.  Keppel,  his  trustee  in  bankruptcy,  sued  the  Tif- 
fin  Savings  Bank  in  an  Ohio  court  to  cancel  a  mortgage  on  real 
estate  given  by  the  bankrupt  a  few  aays  before  bankruptcy, 
when  he  was  insolvent,  with  intent  to  prefer  the  mortgagee  and 
without  present  consideration.  A  judgment  was  entered  avoiding 
the  mortgage. 

Subsequently  the  bank  sought  to  prove  its  claim.  The  Circuit 
Court  of  Appeals,  to  which  the  issue  was  taken,  certified  questions 
to  this  court. 

MR.  JUSTICE  WHITE. 

Can  a  creditor  of  a  bankrupt,  who  has  received  a  merely  voidable 
preference,  and  who  has  in  good  faith  retained  such  preference  until 
deprived  thereof  by  the  judgment  of  a  court  upon  a  suit  of  the  trustee, 
thereafter  prove  the  debt  so  voidably  preferred  ? 

Before  we  develop  the  legal  principles  essential  to  the  solution  of  the 
question  it  is  to  be  observed  that  the  facts  stated  in  the  certificate 
and  implied  by  the  question  show  that  the  bank  acted  in  good  faith 
when  it  accepted  the  mortgage  and  when  it  subsequently  insisted  that 
the  trustee  should  prove  the  existence  of  the  facts  which,  it  was 
charged,  vitiated  the  security.  It  results  that  the  voidable  nature  of 
the  transaction  alone  arose  from  section  67  e  of  the  act  of  1898,  in-  *fa  vf  fS 
validating  "  conveyances,  transfers,  or  encumbrances  of  his  property 
made  by  a  debtor  at  any  time  within  four  months  prior  to  the  filing  of ' 
the  petition  against  him,  and  while  insolvent,  which  are  held  null  and 
void  as  against  the  creditors  of  such  debtor  by  the  laws  of  the  State,  ' 
Territory  or  District  in  which  such  property  is  situate,"  and  giving  the 

*  Nellis  v.  Clark,  20  Wend.  24 ;  8.  c.  4  Hill,  424  ;  Randall  v.  Howard,  2  Black,  585 ; 
Kennett  »>.  Chambers,  14  How.  38,  ace. 

2  A  mortgage  to  one  who  lends  money  which  he  knows  will  be  used  in  giving  a 
preference  may  be  avoided.  Ex  parte  Mendell,  1  Low.  506;  Roberts  v.  Johnson,  151 
Fed.  567  (C.  C.  A.) ;  Walters  v.  Zimmerman,  208  Fed.  62.  A  sale  for  the  same  pur- 
pose was  held  voidable  in  Crafts  v.  Beldan,  99  Mass.  535.  But  see  contra,  Van  Kleeck 
v.  Miller,  19  B.  R.  484;  and  cf.  Van  Iderstine  v.  Nat.  Discount  Co.,  227  U.  S.  575. 


324  KEPPEL   V.   TIFFIN   SAVINGS   BANK. 

assignee  a  right  to  reclaim  and  recover  the  property  for  the  creditors 
of  the  bankrupt  estate. 

On  the  one  hand  it  is  insisted  that  a  creditor  who  has  not  surren- 
dered a  preference  until  compelled  to  do  so  by  the  decree  of  a  court 
cannot  be  allowed  to  prove  any  claim  against  the  estate.  On  the  other 
hand,  it  is  urged  that  no  such  penalty  is  imposed  by  the  bankrupt  act, 
and  hence  the  creditor,  on  an  extinguishment  of  a  preference,  by  what- 
ever means,  may  prove  his  claims.  These  contentions  must  be  deter- 
mined by  the  text,  originally  considered,  of  section  57  g  of  the  bankrupt 
act,  providing  that  "  the  claims  of  creditors  who  have  received  pref- 
erences shall  not  be  allowed  unless  such  creditors  shall  surrender  their 
preferences."  We  say  by  the  text  in  question,  because  there  is 
nowhere  an}-  prohibition  against  the  proof  of  a  claim  by  a  creditor  who 
has  had  a  preference,  where  the  preference  has  disappeared  as  the 
result  of  a  decree  adjudging  the  preferences  to  be  void,  unless  that 
result  arises  from  the  provision  in  question.  We  say  also  from  the 
text  as  originally  considered,  because,  although  there  are  some  de- 
cisions under  the  act  of  1898  of  lower  Federal  courts  (In  re  Greth,  112 
Fed.  Rep.  978;  In  re  Keller,  109  Fed.  Rep.  118,  127;  In  re  Owings, 
109  Fed.  Rep.  623),  denying  the  right  of  a  creditor  to  prove  his  claim, 
after  the  surrender  of  a  preference  by  the  compulsion  of  a  decree  or 
judgment,  such  decision  rests  not  upon  an  analysis  of  the  text  of  the 
act  6f  1898  alone  considered,  but  upon  what  were  deemed  to  have  been 
analogous  provisions  of  the  act  of  1867  and  decisions  thereunder.  We 
omit,  therefore,  further  reference  to  these  decisions  as  we  shall  hereafter 
come  to  consider  the  text  of  the'present  act  by  the  light  thrown  upon  it 
by  the  act  of  1867  and  the  judicial  interpretation  which  was  given  to 
that  act. 

The  text  is,  that  preferred  creditors  shall  not  prove  their  claims 
unless  they  surrender  their  preferences.  Let  us  first  consider  the 
meaning  of  this  provision,  guided  by  the  cardinal  rule  which  requires 
that  it  should,  if  possible,  be  given  a  meaning  in  accord  with  the  gen- 
eral purpose  which  the  statute  was  intended  to  accomplish. 

We  think  it  clear  that  the  fundamental  purpose  of  the  provision  in 
question  was  to  secure  an  equality  of  distribution  of  the  assets  of  a 
bankrupt  estate.  This  must  be  the  case,  since,  if  a  creditor,  having  a 
preference,  retained  the  preference,  and  at  the  same  time  proved  his 
debt  and  participated  in  the  distribution  of  the  estate,  an  advantage 
would  be  secured  not  contemplated  by  the  law.  Equality  of  distri- 
bution being  the  purpose  intended  to  be  effected  by  the  provision,  to 
interpret  it  as  forbidding  a  creditor  from  proving  his  claim  after  a  sur- 
render of  his  preference,  because  such  surrender  was  not  voluntary, 
would  frustrate  the  object  of  the  provision,  since  it  would  give  the 
bankrupt  estate  the  benefit  of  the  surrender  or  cancellation  of  the  pref- 
erence, and  yet  deprive  the  creditor  of  any  right  to  participate,  thus 
creating  an  inequality.  But  it  is  said,  although  this  be  true,  as  the 
statute  is  plain,  its  terms  cannot  be  disregarded  by  allowing  that  to  be 


KEPPEL   V.   TIFFIN   SAVINGS   BANK.  325 

done  which  it  expressly  forbids.  This  rests  upon  the  assumption  that 
the  word  "surrender"  necessarily  implies  only  voluntary  actions,  and 
hence  excludes  the  right  to  prove  where  the  surrender  is  the  result  of  a 
recovery  compelled  by  judgment  or  decree. 

The  word  "•  surrender,"  however,  does  not  exclude  compelled  action,  *~ 
but  to  the  contraiy  generally  implies  such  action.  That  this  is  the 
primarily  and  commonly  accepted  meaning  of  the  word  is  shown  by  the  J 
dictionaries.  Thus,  the  Standard  Dictionary  defines  its  meaning  as  &*sw^ 
follows:  1.  To  yield  possession  of  to  another  upon  compulsion  or  - 
demand,  or  under  pressure  of  a  superior  force  ;  give  up,  especialty  to 
an  enemy  in  warfare  ;  as  to  surrender  an  army  or  a  fort.  And  in 
Webster's  International  Dictionary  the  word  is  primarily  defined  in  the 
same  way.  The  word,  of  course,  also  sometimes  denotes  voluntary 
action.  In  the  statute,  however,  it  is  unqualified,  and  generic,  and 
hence  embraces  both  meanings.  The  construction,  which  would  ex- 
clude the  primary  meaning  so  as  to  cause  the  word  only  to  embrace 
voluntary  action  would  read  into  the  statute  a  qualification,  and  this  in 
order  to  cause  the  provision  to  be  in  conflict  with  the  purpose  which  it 
was  intended  to  accomplish,  equalit}'  among  creditors.  But  the  con- 
struction would  do  more.  It  would  exclude  the  natural  meaning  of  the 
word  used  in  the  statute  in  order  to  create  a  penalty,  although  nowhere 
expressly  or  even  by  clear  implication  found  in  the  statute.  This  would 
disregard  the  elementary  rule  that  a  penalty  is  not  to  be  readily  implied, 
and  on  the  contrary  that  a  person  or  corporation  is  not  to  be  subjected 
to  a  penalt}*  unless  the  words  of  the  statute  plainly  impose  it.  Tiffany 
v.  National  Bank  of  Missouri,  18  Wall.  409,  410.  If  it  had  been  con- 
templated that  the  word  "surrender"  should  entail  upon  every  creditor 
the  loss  of  power  to  prove  his  claims  if  he  submitted  his  right  to  retain 
an  asserted  preference  to  the  courts  for  decision,  such  purpose  could 
have  found  ready  expression  by  qualifying  the  word  "  surrender"  so  as 
to  plainly  convey  such  meaning.  Indeed,  the  construction  which  would 
read  in  the  qualification  would  not  only  create  a  penalty  alone  by 
judicial  action,  but  would  necessitate  judicial  legislation  in  order  to 
define  what  character  and  degree  of  compulsion  was  essential  to  pre- 
vent the  surrender  in  fact  from  being  a  surrender  within  the  meaning 
of  the  section. 

It  is  argued,  however,  that  courts  of  bankruptcy  are  guided  by  equi- 
table considerations,  and  should  not  permit  a  creditor  who  has  retained 
a  fraudulent  preference  until  compelled  by  a  court  to  surrender  it,  to 
prove  his  debt  and  thus  suffer  no  other  loss  than  the  costs  of  litigation. 
The  fallacy  lies  in  assuming  that  courts  have  power  to  inflict  penalties, 
although  the  law  has  not  imposed  them.  Moreover,  if  the  statute  be 
interpreted,  as  it  is  insisted  it  should  be,  there  would  be  no  distinction 
between  honest  and  fraudulent  creditors,  and  therefore  every  creditor 
who  in  good  faith  had  acquired  an  advantage  which  the  law  did  not 
permit  him  to  retain  would  be  subjected  to  the  forfeiture  simply  because 
he  had  presumed  to  submit  his  legal  rights  to  a  court  for  determination. 


326  KEPPEL   V.   TIFFIN    SAVINGS   BANK. 

And  this  accentuates  the  error  in  the  construction,  since  the  elemen- 
tary principle  is  that  courts  are  created  to  pass  upon  the  rights  of 
parties,  and  that  it  is  the  privilege  of  the  citizen  to  submit  his  claims 
to  the  judicial  tribunals,  especially  in  the  absence  of  malice  and  when 
acting  with  probable  cause,  without  subjecting  himself  to  penalties  of 
an  extraordinary  character.  The  violation  of  this  rule,  which  would 
arise  from  the  construction,  is  well  illustrated  by  this  case.  Here,  as 
we  have  seen,  it  is  found  that  the  bank  acted  in  good  faith  without 
knowledge  of  the  insolvency  of  its  debtor  and  of  wrongful  intent  on 
his  part,  and  3*et  it  is  asserted  that  the  right  to  prove  its  lawful  claims 
against  the  bankrupt  estate  was  forfeited  simply  because  of  the  election 
to  put  the  trustee  to  proof  in  a  court  of  the  existence  of  the  facts  made 
essential  by  the  law  to  an  invalidation  of  the  preference. 

We  are  of  opinion  that,  originally  considered,  the  surrender  clause 
of  the  statute  was  intended  simplj-  to  prevent  a  creditor  from  creating 
inequality  in  the  distribution  of  the  assets  of  the  estate  by  retaining  a 
preference  and  at  the  same  time  collecting  dividends  from  the  estate  by 
the  proof  of  his  claim  against  it,  and  consequently  that  whenever  the 
preference  has  been  abandoned  or  }"ielded  up,  and  thereby  the  danger 
of  inequality  has  been  prevented,  such  creditor  is  entitled  to  stand  on 
an  equal  footing  with  other  creditors  and  prove  his  claims. 

[Mr.  Justice  WHITE  proceeded  to  show  that  under  the  English  prac- 
tice a  preferred  creditor  was  allowed  to  prove,  dividends  on  the  proof 
being  retained  until  the  property  was  given  up.  Under  the  act  of 
1867,  section  23  contained  similar  language  to  section  57  g  of  the 
present  act.  Section  39,  however,  provided  that  if  a  recipient  of  prop- 
erty from  the  bankrupt  had  reasonable  cause  to  believe  that  a  fraud 
on  the  act  was  intended,  and  that  the  debtor  was  insolvent,  "such 
creditor  shall  not  be  allowed  to  prove  his  debt  in  bankruptc}-."  Section 
39  was  modified  by  amendment  in  1874  by  limiting  the  creditor's  dep- 
rivation of  his  right  of  proof  to  cases  of  actual  fraud,  and  even  in 
such  cases  allowing  proof  of  half  the  claim.  The  decisions  under 
the  act  were  discordant,  Bump  on  Bankruptcy,  pp.  550  et  seq.  ;  but  in 
Mr.  Justice  WHITE'S  opinion  the  ground  for  holding  under  the  act  of 
1867  that  the  creditor's  right  was  forfeited  must  rest,  at  least  in  part, 
on  section  39  of  the  act,  and  as  there  is  no  analogous  provision  in  the 
present  act,  the  early  decisions  are  inapplicable. 

Mr.  Justice  DAY,  with  whom  Justices  HARLAN,  BREWER  and  BROWN 
concurred,  delivered  a  dissenting  opinion.1] 

1  The  statement  of  the  case  is  abbreviated  and  portions  of  the  opinions  omitted. 
The  decision  was  followed  in  Page  v.  Rogers,  211  U.  8.  575,  though  it  there  appeared 
that  the  creditor  had  reasonable  cause  to  believe  the  debtor  intended  to  give  a  pref- 
erence. 


SECT.  III.]  WEST  COMPANY  V.   LEA.  327 


SECTION  III. 

GENERAL  ASSIGNMENTS. 

WEST  COMPANY  v.   LEA. 
SUPREME  COURT  OF  THE  UNITED  STATES,  MAY  1-22,  1899. 

[Reported  in  174  United  States,  590.] 

WHITE,  J.     The  facts  stated  in  the  certificate  of  the  Circuit  Court  of     • 
Appeals  are  substantially  as  follows  :  — 

Lea  Brothers  &  Company  and  two  other  firms  filed,  on  December 
18,  1898,  a  petition  in  the  District  Court  of  the  United  States  for  the 
Eastern   District  of  Virginia,   praying   that   an   alleged   debtor,    the 
George  M.  West  Company,  a  corporation  located  in  Richmond,  Vir- 
ginia, be  adjudicated  a  bankrupt,  because  of  the  fact  that  it  had,  on 
the  date  of  the  filing  of  the  petition,  executed  a  deed  of  general  assign-   '•?.. 
ment,  conveying  all  its  property  and  assets  to  Joseph  V.  Bidgood,     * 
trustee.     The  George  M.  West  Company  pleaded  denying  that  at  the   '• 
time  of  the  filing  of  said  petition  against  it  the  corporation  was  insol- 
vent, within  the  meaning  of  the  bankrupt  act,  and  averring  that  its  >£,  l^* 
propert}7  at  a  fair  valuation  was  more  than  sufficient  in  amount  to  pay 
its  debts.     The  prayer  was  that  the  petition  be  dismissed.     The  court    ^  •?£•   ' 
rejected  this  plea,  and  adjudicated  the  West  Company  to  be  a  bank-  9<vfe^i 
rupt.     The  cause  was  referred  to  a  referee  in  bankruptcy,  and  certain 
creditors  secured  in  the  deed  of  assignment,  who  had  instituted  pro-   ^J^ 
ceedings  in  the  law  and  equity  court  of  the  cit}T  of  Richmond,  under 
which  that  court  had  taken  charge  of  the  administration  of  the  estate 
and  trust  under  the  deed  of  assignment,  were  enjoined  from  further   c 
prosecuting  their  proceedings,  in  the  State  court,  under  said  deed  of 
assignment.     From  this  decree  an  appeal  was  allowed  to  the  Circuit    -^<c-  ('JtfX 
Court   of  Appeals  for  the  Fourth   Circuit.      On  the  hearing  of  said  /a^^  >e» 
appeal  the  court,  desiring  instructions,  certified  the  case  to  this  court,  j,.  ^ 

The  certificate  recites  the  facts  as  above  stated,  and  submits  the  fol- 

i 

lowing  question :  — 

"  Whether  or  not  a  plea  that  the  party  against  whom  the  petition 
was  filed  '  was  not  insolvent  as  defined  in  the  bankrupt  act  at  the  time 
of  the  filing  of  the  petition  against  him '  is  a  valid  plea  in  bar  to  a  peti- 
tion in  bankruptcy  filed  against  a  debtor  who  has  made  a  general  deed 
of  assignment  for  the  benefit  of  his  creditors." 

The  contentions  of  the  parties  are  as  follows :  On  behalf  of  the  debtor 
it  is  argued  that  under  the  bankrupt  act  of  1898  two  things  must  concur 
to  authorize  an  adjudication  of  involuntary  bankruptc}1,  first,  insolvency 
in  fact,  and,  second,  the  commission  of  an  act  of  bankruptcy.  From 
this  proposition  the  conclusion  is  deduced  that  a  debtor  against  whom  a 


328  WEST   COMPANY  V.   LEA.  [CHAP.  IV. 

proceeding  in  involuntary  bankruptcy  is  commenced  is  entitled  entirely 
irrespective  of  the  particular  act  of  bankruptcy  alleged  to  have  been 
committed,  to  tender,  as  a  complete  bar  to  the  action,  an  issue  of  fact 
as  to  the  existence  of  actual  insolvency  at  the  time  when  the  petition 
for  adjudication  in  involuntary  bankruptcy  was  filed.  On  the  other 
hand,  for  the  creditors  it  is  argued  that  whilst  solvency  is  a  bar  to 
proceedings  in  bankruptcy  predicated  upon  certain  acts  done  by  a  debtor, 
that  as  to  other  acts  of  bankruptc}-,  among  which  is  included  a  general 
assignment  for  the  benefit  of  creditors,  solvency  at  the  time  of  the  filing 
of  a  petition  for  adjudication  is  not  a  bar,  because  the  bankrupt  act  pro- 
vides that  such  deed  of  general  assignment  shall,  of  itself  alone,  be 
adequate  cause  for  an  adjudication  in  involuntary  bankruptc}1,  with- 
out reference  to  whether  the  debtor  by  whom  the  deed  of  general 
assignment  was  made  was  in  fact  solvent  or  insolvent. 

A  decision  of  these  conflicting  contentions  involves  a  construction  of 
section  3  of  the  act  of  July  1,  1898,  c.  541,  30  Stat.  546. 

It  will  be  observed  that  the  section  is  divided  into  several  paragraphs, 
denominated  as  a,  b,  c,  d  and  e.  Paragraph  a  is  as  follows  :  — 

"  SEC.  3.  Acts  of  bankruptc\\  — a.  Acts  of  bankrupt^  by  a  person 
shall  consist  of  his  having  (1)  conveyed,  transferred,  concealed  or 
removed,  or  permitted  to  be  concealed  or  removed,  any  part  of  his 
property  with  intent  to  hinder,  dela}-,  or  defraud  his  creditors,  or  any 
of  them  ;  or  (2)  transferred,  while  insolyjSLnt,  any  portion  of  his  property 
to  one  or  more  of  his  creditors  with  intent  to  prefer  such  creditors  over 
his  other  creditors  ;  or  (3)  suffered  or  permitted,  while  insolvent,  any 
creditor  to  obtain  a  preference  through  legal  proceedings,  and  not 
having  at  least  five  da}'s  before  a  sale  or  final  disposition  of  any 
property  affected  by  such  preference  vacated  or  discharged  such  prefer- 
ence ;  or  (4)  made  a  general  assignment  for  the  benefit  of  his  creditors  ; 
or  (5)  admitted  in  writing  his  inability  to  pay  his  debts  and  his  willing- 
ness to  be  adjudged  a  bankrupt  on  that  ground." 

It  is  patent  on  the  face  of  this  paragraph  that  it  is  divided  into  five 
different  headings,  which  are  designed  numerically  from  1  to  5.  Now, 
the  acts  of  bankruptcy  embraced  in  divisions  numbered  2  and  3  clearl}' 
contemplate  not  only  the  commission  of  the  acts  provided  against,  but 
also  cause  the  insolvency  of  the  debtor  to  be  an  essential  concomitant. 
On  the  contrary,  as  to  the  acts  embraced  in  enumerations  1,  4,  and  5, 
there  is  no  express  requirement  that  the  acts  should  have  been  com- 
mitted while  insolvent.  Considering  alone  the  text  of  paragraph  a,  it 
results  that  the  non-existence  of  insolvency,  at  the  time  of  the  filing 
of  a  petition  for  adjudication  in  involuntary  bankruptcy,  because  of  the 
acts  enumerated  in  1,  4,  or  5  (which  embrace  the  making  of  a  deed  of 
general  assignment)  does  not  constitute  a  defence  to  the  petition,  un- 
less provision  to  that  effect  be  elsewhere  found  in  the  statute.  This 
last  consideration  we  shall  hereafter  notice. 

The  result  arising  from  considering  the  paragraph  in  question  would 
not  be  different  if  it  be  granted  arguendo  that  the  text  is  ambiguous. 


SECT.  III.]  WEST   COMPANY   V.   LEA.  329 

For  then  the  cardinal  rule  requiring  that  we  look  beneath  the  text  for 
the  purpose  of  ascertaining  and  enforcing  the  intent  of  the  lawmaker 
would  govern.  Applying  this  rule  to  the  enumeration's  contained  in 
paragraph  a,  it  follows  that  the  making  of  a  deed  of  general  assign- 
ment, referred  to  in  enumeration  4,  constitutes  in  itself  an  act  of 
bankruptcy,  which  per  se  authorizes  an  adjudication  of  involuntary 
bankruptcy  entirely  irrespective  of  insolvency.  This  is  clearly  demon- 
strated from  considering  the  present  law  in  the  light  afforded  by 
previous  legislation  on  the  subject. 

Under  the  English  bankruptcy  statutes  (as  well  that  of  1869  as  those 
upon  which  our  earlier  acts  were  modelled),  and  our  own  bankruptcy 
statutes  down  to  and  including  the  act  of  1867,  the  making  of  a  deed 
of  general  assignment  was  deemed  to  be  repugnant  to  the  policy  of  the 
bankruptc}"  laws,  and,  as  a  necessary  consequence,  constituted  an  act 
of  bankruptcy  per  se.  This  is  shown  by  an  examination  of  the 
decisions  bearing  upon  the  point,  both  English  and  American.  In 
Globe  Insurance  Go.  v.  Cleveland  Insurance  Co.,  14  N.  B.  R.  311, 
10  Fed.  Cas.  488,  the  subject  was  ably  reviewed  and  the  authorities  are 
there  copiously  collected.  The  decision  in  that  case  was  expressly 
relied  upon  in  In  re  Beisenthal,  14  Blatchf.  146,  where  it  was  held, 
that  a  voluntary  assignment,  without  preferences,  valid  under  the 
laws  of  the  State  of  New  York,  was  void  as  against  an  assignee  in 
bankruptcy,  and  this  latter  case  was  approvingly  referred  to  in  Reed  v. 
Mclntyre,  98  U.  S.  513.  So,  also,  in  Boese  v.  King,  108  U.  S.  379, 
385,  it  was  held,  citing  (p.  387)  Reed  v.  Mclntyre,  that  whatever  might 
be  the  effect  of  a  deed  of  general  assignment  for  the  benefit  of  creditors, 
when  considered  apart  from  the  bankrupt  act,  such  a  deed  was  repug- 
nant to  the  object  of  a  bankruptcy  statute,  and  therefore  was  in  and  of 
itself  alone  an  act  of  bankruptc}-.  The  foregoing  decisions  related  to 
deeds  of  general  assignment  made  during  the  operation  of  the  bankrupt 
act  of  1867,  March  2,  1867,  c.  176,  14  Stat.  536,  or  the  amendments 
thereto  of  June  22,  1874,  c.  390,  and  July  26,  1876,  c.  234,  18  Stat. 
180  ;  19  Stat.  102.  Neither,  however,  the  act  of  1867,  nor  the  amend- 
ments to  it,  contained  an  express  provision  that  a  deed  of  general 
assignment  should  be  a  conclusive  act  of  bankruptcy.  Such  conse- 
quence was  held  to  arise,  from  a  deed  of  that  description,  as  a  legal 
result,  of  the  clause,  in  the  act  of  1867,  forbidding  assignments  with 
"  intent  to  delay,  defraud,  or  hinder"  creditors  and  from  the  provision 
avoiding  certain  acts  done  to  delay,  defeat,  or  hinder  the  execution  of 
the  act.  (Rev.  Stat.  5021,  par.  4,  7.)  Now,  when  it  is  considered 
that  the  present  law,  although  it  only  retained  some  of  the  provisions  of 
the  act  of  1867,  contains  an  express  declaration  that  a  deed  of  general 
assignment  shall  authorize  the  involuntary  bankruptcy  of  the  debtor 
making  such  a  deed,  all  doubt  as  to  the  scope  and  intent  of  the  law  is 
removed.  The  conclusive  result  of  a  deed  of  general  assignment  under 
all  our  previous  bankruptcy  acts,  as  well  as  under  the  English  bankrupt 
laws,  and  the  significant  import  of  the  incorporation  of  the  previous 


330  WEST   COMPANY   V.   LEA.  [CHAP.  IV. 

rule,  by  an  express  statement,  in  the  present  statute  have  been  lucidly 
expounded  by  Addison  Brown,  J.  In  re  Gutwillig,  90  Fed.  Rep.  475, 
478. 

But  it  is  ai'gued  that  whatever  m&y  have  been  the  rule  in  previous 
bankruptcy  statutes,  the  present  act,  in  other  than  the  particular  pro- 
vision just  considered,  manifests  a  clear  intention  to  depart  from  the 
previous  rule,  and  hence  makes  insolvenc}'  an  essential  prerequisite  in 
every  case.  To  maintain  this  proposition  reliance  is  placed  upon  para- 
graph c  of  section  3,  which  reads  as  follows  :  — 

"c.  It  shall  be  a  complete  defence  to  any  proceedings  in  bankruptcy 
instituted  under  the  first  subdivision  of  this  section  to  allege  and  prove 
that  the  party  proceeded  against  was  not  insolvent  as  defined  in  this 
act  at  the  time  of  the  filing  the  petition  against  him,  and  if  solvency  at 
such  date  is  proved  by  the  alleged  bankrupt  the  proceedings  shall  be 
dismissed,  and,  under  said  subdivision  one,  the  burden  of  proving  sol- 
vency shall  be  on  the  alleged  bankrupt." 

The  argument  is  that  the  words  "  under  the  first  subdivision  of  this 
section  "  refer  to  all  the  provisions  of  paragraph  a,  because  that  para- 
graph, as  a  whole,  is  the  first  part  of  the  section,  separately  divided, 
and  although  designated  by  the  letter  a,  it  is  nevertheless  to  be  con- 
sidered, as  a  whole,  as  subdivision  1.  But  whether  the  words  "  first 
subdivision  of  this  section,"  if  considered  intrinsically  and  apart  from 
the  context  of  the  act,  would  be  held  to  refer  to  paragraph  a  as  an 
entirety  or  onty  to  the  first  subdivision  of  that  paragraph,  need  not  be 
considei'ed.  We  are  concerned  only  with  the  meaning  of  the  words  as 
used  in  the  law  we  are  interpreting.  Now,  the  context  makes  it  plain 
that  the  words  relied  on  were  only  intended  to  relate  to  the  first  numeri- 
cal subdivision  of  paragraph  a.  Thus,  in  the  last  sentence  of  paragraph 
c  the  matter  intended  to  be  referred  to  by  the  words  "  first  sub-division 
of  this  section,"  used  in  the  prior  sentences,  is  additional!}'  designated  as 
follows  :  "and  under  said  subdivision  one,"  etc.,  language  which  cannot 
possibly  be  in  reason  construed  as  referring  to  the  whole  of  paragraph 
a,  but  only  to  subdivision  1  thereof. 

This  is  besides  more  abundantly  shown  by  paragraph  d,  which  pro- 
vides as  follows :  — 

"  d.  Whenever  a  person  against  whom  a  petition  has  been  filed  as 
j/  hereinbefore  provided  under  the  second  and  third  subdivisions  of  this 
A  section  takes  issue  with  and  denies  the  allegations  of  his  insolvency,  it 
shall  be  his  dut.y  to  appear  in  court  on  the  hearing  with  his  books, 
papers,  and  accounts  and  submit  to  an  examination,  and  give  testi- 
mony as  to  all  matters  tending  to  establish  solvency  or  insolvency, 
and  in  case  of  his  failure  to  so  attend  and  submit  to  examination  the 
burden  of  proving  his  solvency  shall  rest  upon  him." 

This  manifestly  only  refers  to  enumerations  2  and  3  found  in  para- 
graph o,  which,  it  will  be  remembered,  make  it  essential  that  the  acts 
of  bankruptcj'  recited  should  have  been  committed  by  the  debtor  while 
insolvent.  Indeed,  if  the  contention  advanced  were  followed,  it  would 


SECT.  III.]  WEST   COMPANY  V.   LEA.  331 

render  section  3  in  many  respects  meaningless.  Thus,  if  it  were  to  be 
held  that  the  words  "  first  subdivision  of  this  section,"  used  in  paragraph 
c  referred  to  the  first  division  of  the  section  —  that  is,  to  paragraph  a 
as  a  whole  —  it  would  follow  that  the  words  "second  and  third  sub- 
divisions of  this  section,"  used  in  paragraph  c?,  would  relate  to  the 
second  and  third  divisions  of  the  section  —  that  is,  to  paragraphs  b  and 

c.  But  there  is  nothing  in  these  latter  paragraphs  to  which  the  refer- 
ence  in  paragraph  d  could  possibly  apply,  and  therefore,  under  the 
construction  asserted,  paragraph  d  would  have  no  significance  what- 
ever.    To  adopt  the  reasoning  referred  to  would  compel  to  a  further 
untenable  conclusion.     If  the  reference   in  paragraph  c  to  the  "  first 
subdivision  of  this  section  "  relates  to  paragraph  a  in  its  entirety,  then 
all  the  provisions  in  paragraph  a  would  be  governed  by  the  rule  laid 
down  in  paragraph  c.     The  rule,  however,  laid  down  in  that  paragraph 
would  be  then  in  irreconcilable  conflict  with  the  provisions  of  paragraph 

d,  and  it  would  be  impossible  to  construe  the  statute  harmoniously  with- 
out eliminating  some  of  its  provisions. 

Despite  the  plain  meaning  of  the  statute  as  shown  by  the  foregoing 
considerations,  it  is  urged  that  the  following  provision  contained  in 
paragraph  b  of  section  3  operates  to  render  any  and  all  acts  of  bank- 
ruptcy insufficient,  as  the  basis  for  proceedings  in  involuntary  bank- 
ruptcy, unless  it  be  proven  that  at  the  time  the  petition  was  filed  the 
alleged  bankrupt  was  insolvent.  The  provision  is  as  follows  :  "  A  peti- 
tion may  be  filed  against  a  person  who  is  insolvent  and  who  has  com- 
mitted an  act  of  bankruptcy  within  four  months  after  the  commission 
of  such  act."  Necessarily  if  this  claim  is  sound,  the  burden  in  all  cases 
would  be  upon  the  petitioning  creditors  to  allege  and  prove  such  insol- 
vency. The  contention,  however,  is  clearly  rebutted  by  the  terms  of 
paragraph  c,  which  provides  as  to  one  of  the  classes  of  acts  of  bank- 
ruptcy, enumerated  in  paragraph  a,  that  the  burden  should  be  on  the 
debtor  to  allege  and  prove  his  solvency.  So,  also,  paragraph  rf,  con- 
forming in  this  respect  to  the  requirements  of  paragraph  a,  contem- 
plates an  issue  as  to  the  second  and  third  classes  of  acts  of  bankruptcy, 
merely  with  respect  to  the  insolvency  of  the  debtor  at  the  time  of  the 
commission  of  the  act  of  bankruptcy.  Further,  a  petition  in  a  pro- 
ceeding in  involuntary  bankruptcy  is  defined  in  section  1  of  the  act 
of  1898,  enumeration  20,  to  mean  "a  paper  filed  ...  by  creditors 
alleging  the  commission  of  an  act  of  bankruptcy  by  a  debtor  therein 
named." 

It  follows  that  the  mere  statement  in  the  statute,  by  way  of  recital, 
that  a  petition  ma}'  be  filed  "  against  a  person  who  is  insolvent  and  who 
has  committed  an  act  of  bankruptcy,"  was  not  designed  to  superadd  a 
further  requirement  to  those  contained  in  paragraph  a  of  section  3,  as 
to  what  should  constitute  acts  of  bankruptcy.  This  reasoning  also  an- 
swers the  argument  based  on  the  fact  that  the  rules  in  bankruptcy  pro- 
mulgated by  this  court  provide  in  general  terms  for  an  allegation  of 
insolvency  in  the  petition  and  a  denial  of  such  allegation  in  the  answer. 


332  IN   RE   GUTWILLIG.  [CHAP.  IV. 

These  rules  were  but  intended  to  execute  the  act,  and  not  to  add  to  its 
provisions  by  making  that  which  the  statute  treats  in  some  cases  as 
immaterial  a  material  fact  in  ever}'  case.  Therefore,  though  the  rules 
and  forms  in  bankruptcy  provide  for  an  issue  as  to  solvency  in  cases  of 
involuntary  bankruptcy,  where  by  the  statute  such  issue  becomes  irrele- 
vant, because  the  particular  act  relied  on,  in  a  given  case,  conclusively 
imports  a  right  to  the  adjudication  in  bankruptcy  if  the  act  be  estab- 
lished, the  allegation  of  insolvency  in  the  petition  becomes  superfluous, 
or  if  made  need  not  be  traversed. 

^_0ur_conclusi.on,  then,  is  that,  as  a  deed  of  general  assignment 
for  the  benefit  of  creditors  is  made  by  the  bankruptcy  act  alone 
sufficient  to  justify  an  adjudication  in  involuntary  bankruptcy 
against  the  debtor  making  such  deed,  without  reference  to  his  sol- 
vency at  the  time  of  the  filing  of  the  petition,  the  denial  of  insol- 
vency by  way  of  defence  to  a  petition  based  upon  the  making  of  a 
deed  of  general  assignment,  is  not  warranted  by  the  bankruptcy 
law ;  and,  therefore,  that  the  question  certified  must  be  answered 
in  the  negative;  and  it  is  so  ordered.1 


IN  RE  GUTWILLIG. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  SECOND  CIRCUIT, 
JANUARY  25,  1899._ 

[Reported  in  92  Federal  Reporter,  337.] 

IN  bankruptcy.     Petition  to  review  an  order  of  the  District  Court  of 
the  United  States  for  the  Southern  District  of  New  York. 

In  this  case,  a  petition  in  involuntary  bankruptcy  having  been  filed 

/against  a  debtor  who  had  previously  made  a  general  assignment  for 
the  benefit  of  his  creditors,  the  District  Court,  on  motion  of  the  peti- 
tioning creditors,  granted  a  restraining  order  forbidding  the  assignee 
to  dispose  of  the  assigned  property  or  its  proceeds  until  the  adjudica- 
tion upon  the  petition.  90  Fed.  475.  And  thereupon  the  assignee 
brought  this  petition  for  review  of  such  order. 
Georye  Fielder,  for  petition. 


Stillman  F.  Kneeland,  for  respondent. 
Before  WALLACE   LACOMBE,  and  SHIPM 


Before  WALLACE,  LACOMBE,  and  SHIPMAN,  Circuit  Judges. 

1  A  "  general  assignment  "  must  include  substantially  all  of  the  debtor's  property 
Missouri  P^lec.  Co.  v.  Hamilton  Brown  Co.,  165  Fed.  283.  Any  instrument  which  has 
the  effect  of  turning  over  all  of  the  debtor's  property  for  the  benefit  of  his  creditors  is 
within  the  statute.  Re  Hersey,  171  Fed.  998;  Courtenay  v.  Finch,  194  Fed.  368  (C.  C. 
A.).  The  assignment  must  be  delivered.  Re  Federal  Lumber  Co.,  185  Fed.  926. 
But  an  assignment  is  an  act  of  bankruptcy  though  legally  invalid,  as  for  want  of  assent 
by  the  creditors.  Canner  v.  Tapper  Co.,  168  Fed.  519. 


SECT.  III.]  IN    RE    GUTWILLIG.     ,  333 

WALLACE,  Circuit  Judge.  If  the  general  assignment  made  by  the 
alleged  bankrupt  would,  in  the  event  of  an  adjudication  of  bankruptcy, 
be  treated  as  void  as  against  the  trustee  of  his  estate,  th6  order  enjoin- 
ing the  assignee  from  disposing  of  or  interfering  with  the  property 
transferred  pending  the  hearing  was  a  proper  and  expedient  exertion 
of  the  authority  conferred  upon  courts  of  bankruptcy  by  clause  15,  sec- 
tion 2,  of  the  present  act. 

The  assignment,  which  was  made  November  9,  1898,  recites  the 
insolvency  of  the  assignor,  and  transfers  all  his  property  and  effects  to 
an  assignee  for  the  benefit  of  creditors,  upon  the  trusts  to  convert  the 
same  into  money,  and,  after  paying  the  expenses  of  executing  the  trust, 
to  pay  all  creditors  of  the  assignor  ratabl}*,  and  in  proportion  to  their 
several  demands. 

It  is  insisted  for  the  appellant  that  whenever  the  question  arises  the 
assignment  must  be  determined  to  be  valid,  because  it  was  without 
preferences,  and  does  not  appear  to  have  been  made  with  any  actual 
intent  by  the  insolvent  debtor  to  defraud  his  creditors.  This  conten- 
tion rests  upon  the  terms  of  that  section  of  the  act  which  enumerates 
what  transfers  of  propert}"  by  a  person  who  afterwards  becomes  a 
bankrupt,  and  what  liens  upon  such  property  are  void,  as  against  the 
trustees  of  the  estate.  Section  67.  The  section  declares,  among  other 
things,  that  "  all  conveyances,  transfers,  assignments,  or  encumbrances 
of  his  property  "  made  or  given  by  a  person  adjudged  a  bankrupt  within 
four  months  prior  to  the  filing  of  the  petition  "  with  the  intent  and  pur- 
pose on  his  part  to  hinder,  delay,  or  defraud  his  creditors,  or  any  of 
them,  shall  be  null  and  void  as  against  his  creditors,  except  as  to  pur- 
chasers in  good  faith  and  for  a  present  fair  consideration,"  and  all 
propert}7  transferred  and  incumbered  "as  aforesaid"  shall  remain  a 
part  of  his  estate,  and  pass  to  the  trustee. 

We  entertain  no  doubt  that  a  voluntary  general  assignment,  with  or 
without  p  re  fere  noes,  made  by  an  insolvent  debtor  within  the  prescribed 
four  months,  is  fraudulent,  and  intended  by  him  to  "  hinder,  delay, 
and  defraud  creclitorg,  within  the  meaning  of  the  section,  because  its 
necessary  effect  is  to  defeat  the  operation  of  the  bankrupt  act  and  the 
riirlils  of  the  creditors  to  such  an  administration  of  the  assets  as  that 
gcTTiTntended  to  provide.  The  reasons  for  this  conclusion,  and  the 
authorities  in  support  oFit,  are  so  fully  and  satisfactorily  set  forth  in 
the  opinion  of  Judge  Brown  in  the  court  below  that  we  do  not  deem  it 
necessary  to  enlarge  upon  them.  They  are  summarized  in  the  following 
extract  from  his  opinion  :  — 

"  Since  the  time  of  George  II.,  and  even  prior,  the  current  of  Eng- 
lish adjudications,  followed  by  our  own,  has  been  that  a  voluntary 
assignment  of  all  his  property  by  an  insolvent  debtor  to  an  assignee  of 
nis  own  choosing,  though  without  preferences,  is  itself  an  act  of  bank- 
ruptcv,  a  fraud  upon  the  act,  and  hence  a  fraud  upon  the  creditors,  as 
respects  their  rights  in  bankruptcy,  and  voidable  at  the  trustee's  option, 
even  without  an  express  provision  to  that  effect  in  the  statute." 


334  IN  RE   GUTWILLIG.  [CHAP.  IV. 

The  citations  referred  to  by  him  amply  sustain  the  general  proposi- 
tion. Among  the  most  instructive  are  Barnes  v.  Rettew,  2  Fed.  Cas. 
868,  and  Globe  Ins.  Co.  v.  Cleveland  Ins.  Co.,  10  Fed.  Cas.  488. 

The  general  purpose  of  bankrupt  laws,  and  of  the  present  act,  is  not 
only  to  administer  the  assets  of  insolvent  debtors  on  the  basis  of 
equality,  but  to  secure  that  result  by  giving  to  the  creditors,  and  not 
to  the  debtor,  the  selection  of  the  person  to  be  intrusted  with  the  ad- 
ministration. To  permit  the  administration  to  be  committed  by  an 
insolvent  debtor,  who  is  on  the  heels  of  an  adjudication  of  bankruptcy, 
to  a  trustee  selected  by  himself,  and  thus  be  wholly  withdrawn  from 
the  supervision  of  the  bankrupt  court,  is  irreconcilable  with  any  rea- 
sonable view  of  the  purpose  of  such  legislation.  Hence  it'  has  been 
almost  uniformly  adjudged  that  any  disposition  of  his  property  by  a 
debtor  intended  to  accomplish  that  purpose  is  a  fraud  upon  the  cred- 
itors, who  have  a  right  to  invoke  its  protection.  That  such  disposition 
is  not  one  which  is  fraudulent  at  common  law  is  immaterial.  It  suf- 
fices if  its  necessary  effect  is  to  defraud,  hinder,  or  delay  creditors  in 
their  rights  and  remedies  under  the  bankrupt  law. 

By  the  laws  of  New  York  and  of  many  of  the  other  States,  general 
assignments  by  insolvent  debtors  for  the  benefit  of  creditors,  if  free 
from  actual  fraud,  are  valid,  notwithstanding  they  create  preferences 
between  creditors ;  and,  if  the  contention  urged  upon  this  appeal  is 
sound,  such  assignments,  as  well  as  those  which  are  made  to  distribute 
the  debtor's  property  ratably,  are,  by  the  terms  of  the  section,  good 
against  the  trustee  in  bankruptcy.  The  language  applies  unequivo- 
cally to  all  transfers  or  assignments,  and  declares  those  only  null  and 
void  which  are  made  with  the  intent  and  purpose  to  hinder,  delaj*,  or 
defraud  creditors,  and  places  an  assignment  with  preferences  on  the 
same  footing  as  one  without,  because  it  makes  no  distinction  between 
them.  The  language  also  includes,  not  only  assignments  of  every  kind, 
but  every  kind  of  transfer  or  convej^ance  by  which  a  debtor  may  elect 
to  secure  a  creditor  in  preference  to  or  exclusion  of  his  other  creditors. 
If  it  is  the  meaning  of  the  section  to  permit  preferences  by  assignments 
or  other  conve}Tances  if  they  are  not  fraudulent  at  common  law,  an 
anomaly  has  been  introduced  into  the  present  act  not  found  in  any 
bankrupt  law  hitherto  enacted  in  this  country  or  England  ;  and  it  ex- 
ists in  an  act,  and  in  the  very  section  of  the  act,  which  nullifies  prefer- 
ences obtained  by  legal  proceedings.  It  is  impossible  to  believe  that 
Congress,  while  precluding  a  creditor  from  obtaining  preferences  over 
other  creditors  by  legal  proceedings,  however  regular!}'  and  fairly  em- 
ployed, should  have  intended  to  permit  the  debtor  to  select  one  or  more 
favored  creditors,  and  give  him  or  them  preference  by  his  voluntary 
act  The  section  annuls  "  all  levies,  judgments,  attachments,  or  other 
liens  obtained  through  legal  proceedings  against  a  person  who  is  insol- 
vent, at  any  time  within  four  months  prior  to  the  filing  of  a  petition  in 
bankruptcy  against  him,"  and  an}7  "  lien  created  b}*,  or  obtained  in,  or 
pursuant  to  any  suit  at  law  or  in  equity  .  .  .  begun  against  a  person 


SECT.  III.]  IN   RE   GUTWILLIG.  335 

within  four  months  before  the  filing  of  a  petition  in  bankruptcy  by  or 
against  such  person  ...  (1)  if  it  appears  that  said  lien  was  obtained 
or  permitted  while  the  defendant  was  insolvent,  and  that'  its  existence 
and  enforcement  will  work  a  preference,  or  (2)  the  party  or  parties  to 
be  benefited  thereby  had  reasonable  cause  to  believe  the  defendant  was 
insolvent  and  in  contemplation  of  bankruptcy,  or  (3)  that  such  lien  was 
sought  and  permitted  in  fraud  of  the  provisions  of  this  act,  .  .  .  pro- 
vided that  nothing  herein  contained  shall  have  the  effect  to  destroy  or 
impair  the  title  obtained  by  such  levy,  judgment,  attachment,  or  other 
lien  of  a  bona  fide  purchaser  for  value  who  shall  have  acquired  the 
same  without  notice  or  reasonable  cause  of  inquiry." 

These  provisions  manifest  unmistakably  the  intention  of  Congress 
not  only  not  to  permit  preferences  to  be  acquired  upon  the  bankruptcy 
of  a  debtor  when  he  is  about  to  become  a  bankrupt,  but  also  to  annul 
all  dispositions  of  his  propert}',  except  to  innocent  purchasers,  which 
will  defeat  the  rights  of  creditors  to  a  distribution  by  the  instrumental- 
ities and  according  to  the  scheme  of  the  bankrupt  act.  The  purchaser 
of  a  title  under  a  lien  acquired  by  legal  process  is  not  protected,  unless 
he  took  it  without  notice  of  its  preferential  origin.  The  purchaser  un- 
der a  voluntary  conveyance  must  not  only  be  a  purchaser  in  good  faith, 
but  he  must  be  one  who  has  subtracted  nothing  essentially  from  the 
value  of  the  debtor's  assets.  The}'  are  wholly  inconsistent  with  an  in- 
terpretation of  the  clause  annulling  voluntary  conveyances  which  will 
permit  such  conveyances  to  stand  when  intended  to  defeat  the  opera- 
tion of  the  bankrupt  act.  This  clause  must  be  interpreted  in  a  sense 
which  harmonizes  with  the  general  intent  of  the  section  as  gathered 
from  the  other  clauses ;  and,  thus  read,  it  annuls  any  conveyance  made 
to  impair  or  defeat  the  remedy  of  creditors  under  the  bankrupt  act, 
unless  made  to  a  purchaser  not  in  complicity  with  the  insolvent,  and 
for  a  "present  fair  consideration." 

The  order  of  the  District  Court  is  affirmed,  with  costs.1 

1  Re  Curtis,  91  Fed.  Rep.  737  (see  8.  c.  on  app.,  94  Fed.  Rep.  630) ;  Re  Sievers,  91 
Fed.  Rep.  366  ;  Davis  v.  Bohle,  92  Fed.  Rep.  325  (C.  C.  A.)  ;  Leidigh  Carriage  Co.  v. 
Stengel,  95  Fed.  Rep.  637  (C  C.  A.) ;  Re  Slomka,  122  Fed.  6.SO;  Re  Knight,  125  Fed. 
35 ;  Rogers  v.  Abbot,  206  Mass.  270 ;  Matter  of  Gray,  47  N.  Y.  App.  l)iv.  554,  ace. 


336  IN   RE   WM.   S.   BUTLER  A  CO.  [CHAP.  IV. 


SECTION   IV. 
RECEIVERSHIPS  AS  ACTS  OP  BANKRUPTCY. 

IN  RE  WM.   S.    BUTLER  &  CO.,   INC. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  FIRST  CIRCUIT, 
SEPTEMBER  10,  1913. 

[Reported  in  207  Federal  Reporter,  705.] 

Before  PUTNAM  and  BINGHAM,  Circuit  Judges,  and  ALDRICH,  District 
Judge. 

BINGHAM,  Circuit  Judge. 

This  is  a  petition  of  three  creditors  filed  November  9,  1912,  praying 
for  the  adjudication  in  bankruptcy  of  Wm.  S.  Butler  &  Co.,  Inc.,  on  the 
grounds : 

A.  That  because  of  insolvency  its  property  was  put  in  the  hands  of 
two   receivers   on   November  7,  1912,  by  the   United  States  District 
Court,  sitting  in  equity ; 

B.  That  being  insolvent  it  applied  to  said  court  for  the  appointment 
of  a  receiver,  and  two  receivers  were  appointed  on  said  day. 

The  bill  under  which  the  receivers  were  appointed  was  a  creditor's 
bill  and  alleged  among  other  things : 

1.  That  the  defendant  is  unable  to  meet  its  liabilities  as  they  mature 
in  the  ordinary  course  of  business. 

2.  That  the  defendant  is  engaged  in  the  retail  dry  goods  business 
in  Boston ;   has  invested  more  than  two  hundred  and  fifty  thousand 
dollars  in  stocks  of  new  merchandise  which  are  immediately  available 
for  sale  at  a  profit  if  the  business  can  be  carried  on  without  interrup- 
tion ;   and  that  the  store  occupied  by  it  has  recently  been  refitted  with 
expensive  fixtures,  which  are  of  great  value  to  a  going  concern. 

3.  That  it  holds  a  lease  of  the  premises  it  occupies,  which  is  of  great 
value,  and  would  be  of  great  value  to  any  purchaser  of  its  business  as 
a  going  concern,  but  that  if  attachments  should  be  placed  upon  its  prop- 
erty, and  the  defendant  should  be  adjudicated  a  bankrupt,  the  value 
of  its  lease  would  be  wholly  lost. 

4.  That  the  defendant  and  its  predecessors  during  many  years  of  con- 
tinuous business  have  built  up  a  good  will  of  great  value  which  would 
be  almost  wholly  lost  if  the  business  should  be  closed  up. 

The  bill  prayed  the  appointment  of  a  receiver,  the  continuance  of 
the  business  and  the  equitable  disposition  of  the  assets  The  defend- 
ant admitted  the  truth  of  the  allegations  of  the  bill,  by  answers  filed 
on  the  same  day  as  the  bill,  and  a  decree  was  entered  appointing 
receivers  with  authority  to  carry  on  the  business. 

In  the  District  Court  it  was  found  that  the  proceeding  in  equity 
was  brought  about  by  Butler  &  Company,  and  that,  although  the 


SECT.  IV.]  IN  RE   WM.   S.  BUTLER  4   CO.  337 

bill  was  in  form  a  creditor's  bill,  it  was  in  fact  an  application  by  the 
debtor  for  the  appointment  of  receivers.  It  was  also  foqnd  that  the 
debtor  was  insolvent  in  the  bankruptcy  sense  of  the  term,  at  the  time 
of  the  filing  of  the  bill  and  at  the  time  of  the  filing  of  the  petition  in 
bankruptcy.  The  company  was  adjudged  a  bankrupt  on  both  the 
grounds  set  out  in  the  petition,  and  the  receivers  and  intervening  credi- 
tors appealed. 

Section  1,  clause  15,  of  the  -act  undoubtedly  sets  forth  the  meaning 
Congress  intended  should  be  given  to  the  words  "insolvent"  and  "in- 
solvency "  as  used  in  section  3a,  clause  (4),  and  seems  to  be  the  one 
either  directly  or  impliedly  attributed  to  them  by  the  courts  in  consider- 
ing these  provisions  of  the  law.  In  re  Golden  Malt  Cream  Co.  (C.  C.  A., 
7th  Cir.),  164  Fed.  326 ;  Duncan  v.  Landis  (C.  C.  A.,  3rd  Cir.),  106 
Fed.  839 ;  In  re  Boston  and  Oaxaca  Mining  Co.  (D.  C.,  Mass.),  181 
Fed.  422 ;  In  re  Perry- Aldrich  Co.  (D.  C.,  Mass.),  165  Fed.  249 ; 
Beatty  v.  Anderson  Coal  Mining  Co.  (C.  C.  A.,  1st  Cir.),  150  Fed.  293  ; 
Hooks  v.  Aldridge  (C.  C.  A.,  5th  Cir.),  145  Fed.  865  ;  Blue  Mt.  Iron 
and  Steel  Co.  v.  Portner  (C.  C.  A.,  4th  Cir.),  131  Fed.  57 ;  In  re  Edward 
Ellsworth  Co.  (D.  C.,  N.  Y.),  173  Fed.  699.  No  case  has  been  called 
to  our  attention  in  which  a  different  conclusion  has  been  reached.  If 
any  inference  as  to  the  question  is  to  be  drawn  from  the  decision  in  In 
re  Kennedy  Tailoring  Co.  (D.  C.,  Tenn.),  175  Fed.  871,  relied  on  by 
the  appellees,  it  would  seem  to  be  that  the  insolvency  there  contem- 
plated was  insolvency  in  the  bankruptcy  sense,  and  in  the  Beatty  case 
it  was  specifically  alleged  in  the  bill  of  complaint  that  the  debtor  was 
insolvent  in  fact,  as  its  assets  were  less  than  its  liabilities.  The  deci- 
sion in  In  re  Golden  Malt  Cream  Company  is  directly  in  point,  and  to 
the  effect  that  insolvency,  as  used  in  clause  4,  means  insolvency  as  de- 
fined in  the  Bankruptcy  Act. 

With  regard  to  the  first  act  of  bankruptcy  alleged  in  the  petition  — 
that  on  the  seventh  .of  November,  1912,  receivers  were  put  in  charge 
of  the  debtor's  property  because  of  insolvency  —  the  only  evidence  in 
its  support  presented  at  the  trial  was  the  bill,  answer,  and  decree  in  the 
equity  proceeding;  and  the  question  is  presented  whether  the  decree 
and  record  in  that  proceeding  disclose  that  the  receivers  were  put  in 
charge  of  the  debtor's  property  because  of  insolvency;  that  is,  because 
its  assets,  at  a  fair  valuation,  were  not  sufficient  in  amount  to  pay  its 
debts  ;  for  unless  it  can  be  clearly  determined  from  the  decree,  or  rec- 
ord as  a  whole,  that  this  was  the  sole  or  one  of  the  substantial  grounds 
on  which  the  decree  appointing  the  receivers  was  based,  the  adjudica- 
tion in  bankruptcy  to  the  extent  that  its  validity  depends  upon  this 
alleged  act  of  bankruptcy  cannot  be  sustained. 

In  Russell  v.  Place,  94  U.  S.  606,  608,  the  court,  in  considering  the 
effect  of  a  judgment  when  pleaded  as  a  bar  or  offered  as  evidence  in  a 
subsequent  suit  between  the  same  parties  or  their  privies,  and  for  a 
different  cause  of  action,  said  : 

"It  is  undoubtedly  settled  law  that  a  judgment  of  a  court  of  com- 
petent jurisdiction,  upon  a  question  directly  involved  in  one  suit,  is 


338  IN    RE   WM.    S.   BUTLER   A  CO.  [CHAP.  IV. 

conclusive  as  to  that  question  in  another  suit  (for  a  different  cause  of 
action)  between  the  same  parties.  But  to  this  operation  of  the  judg- 
ment it  must  appear,  either  upon  the  face  of  the  record  or  be  shown 
by  extrinsic  evidence,  that  the  precise  question  was  raised  and  deter- 
mined in  the  former  suit.  If  there  be  any  uncertainty  on  this  head  in 
the  record  —  as,  for  example,  if,  it  appear  that  several  distinct  matters 
may  have  been  litigated,  upon  one  or  more  of  which  the  judgment  may 
have  passed,  without  indicating  which  of  them  was  thus  litigated,  and 
upon  which  the  judgment  was  rendered  —  the  whole  subject-matter  of 
the  action  will  be  at  large,  and  open  to  a  new  contention,  unless  this 
uncertainty  be  removed  by  extrinsic  evidence  showing  the  precise  point 
involved  and  determined.  To  apply  the  judgment,  and  give  effect  to 
the  adjudication  actually  made,  when  the  record  leaves  the  matter  in 
doubt,  such  evidence  is  admissible." 

And,  again,  on  page  610,  the  same  court  says : 

"  If  upon  the  face  of  a  record  anything  is  left  to  conjecture  as  to 
what  was  necessarily  involved  and  decided,  there  is  no  estoppel  in  it 
when  pleaded,  and  nothing  conclusive  in  it  when  offered  as  evidence." 

See,  also,  on  this  question :  Beatty  v.  Anderson  Coal  Mining  Co. 
(C.  C.  A.,  1st  Cir.),  150  Fed.  293  ;  In  re  Kennedy  Tailoring  Co.  (D.  C., 
Tenn.),  175  Fed.  871,  873;  Crowell  v.  County  of  Soc.,  94  U.  S.  351; 
In  re  Watts,  190  U.  S.  1,  35  ;  Metcalf  v.  Gilmore,  63  N.  H.  174,  189. 

Does  it  appear  from  the  bill,  answer,  and  decree  that  it  was  alleged 
and  determined  that  the  assets  of  the  debtor,  at  a  fair  valuation,  were 
insufficient  to  pay  its  debts,  and  that  that  was  the  sole  ground,  or  one 
of  the  substantial  grounds,  upon  which  the  decree  appointing  the  re- 
ceivers was  made?  It  is  to  be  borne  in  mind  in  considering  this  ques- 
tion that  the  burden  of  proof  is  upon  the  petitioner  to  show  these  facts. 
It  is  also  to  be  borne  in  mind  that  the  record  in  the  equity  proceeding 
was  the  only  evidence  that  was  introduced  in  this  case  upon  which 
these  facts  were  to  be  determined,  and  that  if  extraneous  evidence 
could  have  been  resorted  to  in  case  the  record  left  it  doubtful  what  was 
litigated  or  admitted  and  upon  what  the  decree  was  based,  no  such  evi- 
dence was  introduced. 

The  decree  does  not  state  the  ground  or  grounds  upon  which  the 
receivers  were  appointed,  and  its  terms  are  not  coextensive  with  the 
allegations  and  prayers  of  the  bill.  It  states  that  it  was  entered  "upon 
consideration  of  the  bill  of  complaint  and  the  answer  thereto,  and  no 
motion  of  counsel  for  the  plaintiff,  the  respondent,  by  its  attorney, 
consenting  thereto."  "We  must  therefore  look  to  the  bill  and  answer. 
The  bill  alleges  as  a  specific  ground  for  the  appointment  of  receivers 
the  inability  of  the  defendant  to  meet  its  obligations  as  they  mature 
in  the  ordinary  course  of  business.  This  is  an  allegation  of  insolvency 
according  to  one  of  the  common  law  definitions  of  the  term,  but  not 
as  defined  in  section  1,  clause  15,  and,  being  specially  alleged  in  the 
bill  and  admitted  in  the  answer,  it  may  be  assumed,  inasmuch  as  it 
was  a  sufficient  ground  on  which  to  appoint  receivers,  that  it  was  at 
least  one  of  the  grounds,  if  not  the  sole  ground,  upon  which  the  ap- 


SECT.  IV.]  IN  RE  WM.   S.   BUTLER  4  CO.  339 

pointment  was  made.  On  the  other  hand,  nowhere  in  the  bill  is  it 
alleged  that  the  defendant's  property,  at  a  fair  valuation,  is  insufficient 
to  pay  its  debts,  and,  although  its  liabilities  are  stated,  'the  valuation 
of  its  assets  other  than  they  are  of  great  value,  is  nowhere  given.  In 
the  absence  of  such  allegations  it  cannot  be  said  that  the  defendant 
by  its  answer  admitted  them  to  be  true,  or  that  in  the  absence  of  such 
an  admission  the  court  based  its  decree  upon  that  ground. 

Then,  again,  the  prayers  of  the  bill  were  granted  only  to  the  extent 
that  they  contemplated  and  sought  the  appointment  of  receivers  to 
assume  control  of  the  business  and  conduct  the  company's  affairs  until 
otherwise  ordered  by  the  court.  The  prayer  wherein  it  was  asked  that 
the  plaintiffs  indebtedness  and  that  of  other  creditors  be  determined, 
and  that  the  assets  of  the  company,  if  they  were  insufficient  to  pay  its 
indebtedness  in  full,  should  be  equitably  distributed,  was  not  covered 
by  the  decree.  This  being  so,  the  decree  is  alone  consistent  with  the 
idea  that  it  was  made  with  a  view  to  the  preservation  of  the  value  of 
the  defendant's  assets  as  a  going  concern,  and  of  enabling  the  debtor 
through  an  extension  of  credit  and  a  continuation  of  its  business  to 
realize  a  sum  sufficient  to  pay  its  debts  in  full,  and  to  avoid  insolvency 
if  possible.  In  fact,  all  the  allegations  of  the  bill,  so  far  as  they  were 
recognized  by  the  decree,  are  consistent  with  the  main  allegation  that 
the  defendant  was  unable  to  meet  its  obligations  in  the  ordinary  course 
of  business,  and  it  seems  to  us  that  it  would  be  putting  upon  them  a 
strained  construction  to  hold  that  the  debtor,  by  admitting  in  its  answer 
that  its  property  was  of  great  value,  thereby  admitted  that  it  was  in- 
solvent in  fact,  that  is,  in  the  bankruptcy  sense,  and  that  the  court 
made  use  of  it  as  one  of  the  grounds  on  which  to  base  its  decree  ap- 
pointing receivers. 

It  has  also  been  urged  that  the  receivers  appointed  in  this  case  were 
temporary,  and  that  such  an  appointment  was  not  an  act  of  bankruptcy 
within  the  meaning  of  the  clause  under  consideration.  It  does  not 
seem  to  us  that  it  is  of  any  moment  whether  the  receivers  be  termed 
temporary  or  permanent ;  that  the  real  question  is  whether  the  decree 
appointing  them  was  based  on  the  insolvency  of  the  debtor  as  defined 
in  the  Bankruptcy  Act.  If  it  was,  the  act  of  bankruptcy  contemplated 
by  the  statute  took  place,  and  if  it  was  not  there  was  no  act  of  bank- 
ruptcy within  its  meaning.  In  re  Kennedy  Tailoring  Co.  (D.  C.,  Tenn.), 
175  Fed.  871 ;  Blue  Mt.  Iron  and  Steel  Co.  v.  Portner  (C.  C.  A.,  4th 
Cir.),  131  Fed.  57.  The  decisions  in  Zugalla  v.  Mercantile  Agency 
(C.  C.  A.,  3rd  Cir.),  142  Fed.  929,  and  Hudson  River  Electric  Power 
Co.  (D.  C.,  N.  Y.),  173  Fed.  934,  upon  which  the  appellants  rely, 
would  seem  to  be  based  rather  upon  the  fact  that  no  adjudication  of 
insolvency  had  been  made  in  the  equity  proceeding  in  which  receivers 
had  been  appointed  than  upon  the  nature  of  the  receivership. 

As  to  the  second  alleged  act  of  bankruptcy,  the  question  is 
whether  the  defendant,  being  insolvent,  applied  for  a  receiver  for 
its  property. 

In  the  bill  in  equity  the  plaintiff  alleges  (1)  that  it  is  a  citizen  and 


340  IN  RE  WM.   S.   BUTLER   &  CO.  [CHAP.  IV. 

resident  of  the  State  of  Maine,  and  brings  the  bill  in  behalf  of  itself 
and  other  creditors  of  the  defendant,  a  citizen  and  resident  of  Massa- 
chusetts, and  (2)  that  the  defendant  is  indebted  to  the  plaintiff  in 
a  sum  not  less  than  twenty-five  thousand  dollars,  a  large  part  of 
which  is  overdue,  and  though  often  demanded  remains  wholly  unpaid. 

Both  of  the  above  allegations  were  essential  to  establish  a  case 
cognizable  under  the  judiciary  act  of  the  United  States  by  the  Federal 
Court.  The  second  allegation  was  also  material  to  the  establishment 
of  the  plaintiff's  right  to  equitable  relief. 

The  defendant  in  its  answer  admitted  both  allegations,  and  by  so 
doing  waived  its  right  to  object  to  any  insufficiency  in  the  second 
allegation,  and  material  to  the  equitable  relief  desired,  in  that  it  was 
not  there  alleged  that  the  claim  had  been  reduced  to  a  judgment, 
and  that  execution  had  issued  and  been  returned  unsatisfied.  Matter 
of  Reisenberg,  208  TJ.  S.  90;  Hollins  v.  Brinfield  Coal  &  Iron  Co., 
150  U.  S.  376. 

Now,  what  was  determined  by  the  decree  in  the  equity  suit  with 
reference  to  the  application  for  receivers?  It  is  evident  that  under 
the  first  allegation  of  the  bill  the  court  must  have  decided  that  the 
pi'oceeding  was  one  brought  by  the  plaintiff,  a  citizen  and  resident 
of  Maine,  against  the  defendant,  a  citizen  and  resident  of  Massa- 
chusetts ;  and,  under  the  second  allegation,  that  the  amount  in  con- 
troversy between  the  parties  answered  the  jurisdictional  requirement; 
and  that  this  allegation,  taken  in  connection  with  the  subsequent 
allegations  of  the  bill,  entitled  the  plaintiff  to  equitable  relief.  It 
having,  therefore,  been  determined  in  the  equity  proceeding  that  the 
party  set  out  in  the  bill  as  plaintiff  was  the  real  plaintiff  and  a  creditor 
of  the  defendant  entitled  to  equitable  relief,  the  decree,  when  intro- 
duced in  the  bankruptcy  proceeding,  in  the  absence  of  proof  of  fraud 
in  its  procurement,  was  and  should  have  been  regarded  as  conclusive 
evidence  that  the  application  for  receivers  was  made  by  the  McLean 
Sons  Company  and  not  by  the  Butler  Company. 

Moreover,  it  does  not  seem  reasonable  that  Congress,  in  the  enact- 
ment of  clause  4,  could  have  contemplated  that  a  decree  in  an  equity 
proceeding,  determining  who  the  applicant  for  receivers  was,  should 
be  subject  to  attack  when  offered  as  evidence  in  a  bankruptcy  pro- 
ceeding, unless  it  be  for  fraud  or  collusion.  In  this  case  it  is  ex- 
pressly found  that  there  was  no  fraud  or  collusion,  and  t  it  was 
therefore  not  open  to  the  bankruptcy  court  to  disregard  the  decree 
and  undertake  to  determine  the  question  anew.  Matter  of  Reisen- 
berg, 208  U.  S.  90 ;  In  re  Edward  Ellsworth  (D.  C.,  N.  Y.),  173  Fed. 
699 ;  Exploration  Mercantile  Co.  v.  Pacific  H.  &  S.  Co.  (C.  C.  A., 
9th  Cir.),  177  Fed.  825;  In  re  Duplex  Radiator  Co.  (D.  C.,  N.  Y.), 
142  Fed.  906 ;  In  re  C.  Moench  &  Sons  Co.  (C.  C.  A.,  2nd  Cir.),  130 
Fed.  685. 

But  if  it  were  open  to  the  bankruptcy  court  to  disregard  the  decree 
and  to  determine  this  question  anew,  we  are  of  the  opinion  the  find- 
ing of  the  court  below  —  that  the  application  for  receivers  was  made 


SECT.  IV.]  IN   RE   WM.    S.   BUTLER   A   CO.  341 

by  Butler  &  Company  —  was  not  authorized  by  the  evidence.  A 
corporation  can  act  only  through  its  officers  and  agents,  but  their 
action  to  bind  the  corporation  must  be  within  the  Scope  of  their 
authority.  A  general  agent  charged  with  the  management  of  a  cor- 
poration is  not  authorized  to  dispose  of  its  entire  property  in  a  single 
transaction,  in  the  absence  of  special  authority  so  to  do.  If  the 
directors  of  a  corporation  may  authorize  such  a  disposition  of  the 
property  of  the  corporation,  they  can  do  so  only  at  a  duly  warned 
meeting  of  the  board,  or  one  at  which  all  are  present.  And  the  stock- 
holders can  confer  such  authority  only  by  the  vote  of  a  majority  in 
a  corporate  meeting  duly  warned,  or  by  unanimous  agreement. 

The  application  for  receivers  in  the  equity  proceeding  involved 
action  looking  to  a  parting  with  the  entire  management  and  control 
of  the  business  of  Butler  &  Company,  and  if  made  by  the  company, 
while  insolvent,  was  an  act  of  bankruptcy.  The  evidence  upon  which 
the  finding  that  Butler  &  Company  made  the  application  was  based, 
was  that  certain  agents  and  counsel  for  the  corporation  undertook 
to  bring  about  the  application  by  procuring  a  creditor,  the  McLean 
Sons  Company,  to  make  it  in  its  name. 

If  procuring  a  creditor  to  make  an  application  for  receivers  can  be 
found  to  be  the  application  of  the  corporation,  and  an  act  of  bank- 
ruptcy, it  can  only  be  so  when  there  is  proof  that  the  agents  had 
authority  to  take  such  a  course  of  action.  In  this  case  the  evidence 
discloses  that  there  was  no  vote  of  the  board  of  directors,  or  of  the 
stockholders,  authorizing  the  action,  and  no  agreement  of  all  the 
stockholders. 

It  is  urged  by  the  appellees  that  the  directors  and  stockholders 
acquiesced  in  the  action  taken  by  these  agents,  and  ratified  their 
conduct.  But  the  directors  of  the  corporation,  having  no  authority 
to  act  singly,  could  not,  except  as  a  board,  ratify  action  which  they 
could  not  have  authorized,  except  as  a  board.  And  the  stockholders 
could  not  be  found  to  have  acquiesced  in  and  ratified  the  action  of 
the  agents  in  question  without  proof  that  they  knew  what  action  was 
taken,  and  that  it  was  in  behalf  of  the  corporation.  There  was  no 
evidence  that  all  the  stockholders  knew  what  action  these  agents  had 
taken.  The  equity  proceeding,  so  far  as  the  records  would  disclose, 
was  the  application  of  a  creditor,  and  would  give  no  information  as 
to  what  these  agents  had  done.  And  the  knowledge  possessed  by 
the  agents  of  action  taken  by  themselves  in  excess  of  their  authority 
would  not  be  imputable  to  the  corporation  or  the  stockholders. 

As  it  appears  that  the  action  of  these  agents  was  unauthorized,  and 
there  was  no  evidence  that  it  was  subsequently  ratified,  the  corporation 
could  not  be  found  to  have  made  the  application  for  receivers. 

The  situation  in  this  case  resolves  itself  into  this:  That  Butler  & 
Company,  being  insolvent  in  the  bankruptcy  sense,  was  put  into  the 
hands  of  receivers.  This,  however,  is  not  an  act  of  bankruptcy  as 
defined  in  clause  4,  as  amended  in  1903,  and  it  is  apparent  that  Con- 
gress did  not  intend  to  make  it  one.  The  amendment  when  introduced 


342  IN   RE   WM.   S.    BUTLER   &  CO.  [CHAP.  IV. 

read:  "Being  insolvent,  applied  for  or  was  put  in  the  hands  of  a  re- 
ceiver." 

In  the  Senate  its  language  was  changed  to  read  as  finally  enacted. 
Had  it  become  a  law  as  originally  introduced,  the  facts  in  this  case 
would  disclose  an  act  of  bankruptcy,  but,  by  enacting  the  clause  as 
amended  by  the  Senate,  Congress  manifested  an  intention  to  leave  the 
situation  presented  by  this  case  unprovided  for,  and  it  is  not  for  the 
court  to  enlarge  the  meaning  of  the  statute  by  construction  and  attempt 
to  provide  for  the  omitted  situation  by  holding  that  the  phrase,  "be- 
cause of  insolvency,"  means  insolvency  other  than  as  defined  in  sec- 
tion 1,  clause  15. 

PUTNAM,  Circuit  Judge  (dissenting)  : 

The  burden  of  the  litigation  in  this  case  is  over  the  definitions  given 
to  the  words  "  insolvent"  and  "  insolvency,"  incorporated  in  the  Bank- 
ruptcy Statutes  by  the  amendment  of  1903,  so  far  as  they  relate  to 
these  appeals.  A  careful  perusal  of  text  books  and  of  the  decisions  of 
the  courts  bearing  on  the  definitions  to  be  given  these  words  as  applied 
here  fails  to  show  any  authority  for  giving  the  peculiar  definition  to 
the  words  in  question  as  applied  here,  except  the  Golden  Malt  Co. 
(C.  C.  A.,  7th  Cir.),  164  Fed.  326.  This  case  was  much  like  many  of 
the  early  decisions  with  reference  to  the  Bankruptcy  Statutes,  where 
the  conclusions  were  apparently  reached  without  much  consideration. 
The  text  was  so  hastily  drawn  that,  on  page  328,  it  declared  the 
provision  in  question  here  was  a  part  of  the  statute  of  July  1,  1898, 
when  it  came  in  by  the  act  of  1903,  32  Stat.  797,  as  an  entirely  new 
topic ;  a  fact  which  must  be  regarded  in  interpreting  statutes,  which 
must  always  be  interpreted  from  an  historical  point  of  view  in  order 
to  be  correctly  understood.  It  is  true  that  the  amendatory  act  of  1903 
was  strictly  amendatory,  in  such  way  as  to  embody  the  amendment  into 
the  original  act  of  1898  ;  but,  whatever  the  circumstances  under  which 
an  amendment  comes  in,  or  the  form  which  it  takes,  the  courts  are 
always  at  liberty  to  make  a  broad  investigation  and  to  apply  broad 
considerations  with  regard  to  construing  an  amendment,  even  more 
than  with  reference  to  construing  any  part  of  the  body  of  the  original 
statute,  which  latter,  of  course,  is  always  qualified  by  the  context. 
Here,  especially,  while  the  statute  of  1898  applied  throughout  to  courts 
in  bankruptcy,  and  therefore  may  justly  be  held  to  have  made  propo- 
sitions from  the  uniform  standpoint  of  those  courts  throughout,  yet 
this  amendment  related  to  proceedings  in  courts  of  equity  and  com- 
mon law ;  and  in  describing  those  proceedings  it  may  be  assumed  to 
use  the  language  of  those  courts,  and  to  construe  that  language  as  those 
courts  would  have  construed  it.  It  is  not  credible  to  hold  that,  in  refer- 
ring to  proceedings  of  the  courts  of  equity  and  common  law,  the  words 
"  insolvent"  or  "  insolvency,"  under  these  circumstances,  were  to  have 
any  different  construction  than  that  usually  given  them  in  those  courts. 

By  giving  the  words  "insolvent"  or  "insolvency,"  as  found  in  the 
amendment  of  1903,  the  peculiar  definition  given  them  by  the  body  of 


SECT.  IV.]  IN   RE   WM.   S.    BUTLER  A   CO.  343 

the  act  of  1898,  we  would  practically  defeat  the  purpose  of  the  amend- 
ment, and  the  amendment  would  be  inapplicable.  No, proceeding  in 
either  courts  of  equity  or  common  law  has  ever  yet,  in  appointing 
receivers  or  otherwise,  used  the  words  "insolvent"  or  "insolvency" 
in  the  special  sense  declared  by  the  Bankruptcy  Act  of  1898.  Giving 
these  words  the  force  which  the  opinion  of  the  court  gives  them  would 
be  in  substance  declaring  that  no  adjudication  in  bankruptcy  based 
on  the  appointment  of  a  receiver  by  a  court  of  equity  or  common  law 
was  in  fact  and  in  substance  justifiable,  because  there  never  has  been 
any  case  where  such  an  adjudication  was  secured  in  which  the  court 
which  appointed  the  receiver  has  ever  given  to  those  words  the  peculiar 
definition  given  them  by  the  Bankruptcy  Act  of  1898,  or  was  ever 
asked  to  do  so.  In  the  Golden  Malt  Co.  case,  to  which  we  have  re- 
ferred, the  adjudication  in  bankruptcy  was  finally  refused.  Not  only  has 
there  never  been  any  adjudication  in  bankruptcy  based  on  the  appoint- 
ment of  a  receiver  under  circumstances  like  those  stated  in  the  opinion 
of  the  court,  but  there  is  no  reasonable  probability  that  there  ever  will 
be;  as  not  only  has  no  court  of  common  law  or  equity  ever  accepted 
the  definition  of  "insolvency"  embodied  in  the  Bankruptcy  Statutes, 
but  there  is  no  reasonable  probability  that  such  courts  ever  will  do  so. 

None  of  the  cases  cited  in  the  opinion  of  the  courts  seems  to  sus- 
tain its  propositions.  106  Fed.  839,  was  decided  before  the  amend- 
ment of  1903  ;  181  Fed.  422,  was  in  the  District  Court,  and  turned  on 
a  question  of  fraud  and  collusion ;  165  Fed.  249,  has  the  same  features 
as  the  case  last  referred  to;  150  Fed.  293,  the  Beatty  case,  quite  well 
known,  showed  expressly  that  the  proceeding  in  the  State  court  de- 
clared only  that  the  parties  proceeded  against  were  unable  to  meet  their 
obligations  as  they  came  due ;  in  145  Fed.  865,  the  question  we  have 
here  was  referred  to  at  page  868,  but  was  not  decided,  either  there  or 
at  page  871  ;  in  131  Fed.  57,  the  case  was  submitted  to  the  jury  in  the 
District  Court  from  the  aspect  taken  in  the  opinion  of  the  court  here, 
but  was  disposed  of  in  the  Circuit  Court  of  Appeals  as  a  mere  question 
of  fact,  without  any  disposition  of  the  question  of  law  now  brought  to 
our  attention;  the  other  cases  cited  were  in  the  District  Court,  and,  of 
course,  are  not  authority  on  an  appeal  from  the  District  Court,  as  there 
has  been  no  such  mass  of  them  as  would  indicate  a  general  acquies- 
cence in  the  proposition  now  maintained.  139  Fed.  244,  did  not  raise 
or  discuss  the  question  we  have  before  us,  although  cited  to  sustain 
the  decision  of  the  District  Court  in  173  Fed.  699. 

Therefore,  while  disposed  to  give  full  effect  to  the  rule  in  this  cir- 
cuit with  regard  to  following  decisions  of  Circuit  Courts  of  Appeals  of 
other  circuits,  we  cannot  go  so  far  as  to  adopt  the  Golden  Malt  Co. 
case,  which  is  inconsistent  with  the  settled  practice,  and  which  practi- 
cally nullifies  the  statute  to  which  we  are  asked  here  to  give  effect. 
Therefore,  as  this  is  really  the  only  substantial  proposition  which  stands 
in  the  way  of  affirming  the  judgment  of  the  District  Court,  we  are  of 
the  opinion  that  that  judgment  should  be  allirmed.1 
1  The  case  has  been  slightly  abbreviated. 


344 


EVERETT   V.   JUDSON. 


[CHAP.  v. 


CHAPTER  V. 
WHAT  PROPERTY   PASSES   TO   THE  TRUSTEE. 


1  // 


SECTION   I. 
TIME  OF  THE  TRANSFER. 

EVERETT  v.   JUDSON. 
ME  COURT  OF  THE  UNITED  STATES,  MARCH  13-ApRiL  28,  1913. 

[Reported  in  228  United  States,  474.] 

Mr.  Justice  DAT  delivered  the  opinion  of  the  court.1 

A  petition  in  involuntary  bankruptcy  was  filed  against  the  firm  of 
Judson  &  Judson  and  its  members,  Alfred  M.  Judson  being  one,  on 
December  17, 1910,  and  on  December  23,  1910,  Judson  entered  a  notice 
of  his  appearance  in  the  proceedings.  On  January  9,  1911,  the  firm 
and  its  members  were  adjudged  bankrupts,  and  on  February  9,  1911, 
Everett  qualified  as  trustee.  Judson  owned  certain  life  insurance  poli- 
cies at  the  time  of  the  institution  of  the  bankruptcy  proceedings,  and 
thereafter,  and  until  his  death,  payable  to  his  executors,  administrators, 
or  assigns. 

On  January  4,  1911,  Judson  committed  suicide.  Notice  was  served 
on  the  trustee  that  the  executor  claimed  the  right,  under  section  70a  of 
the  Bankruptcy  Act,  to  pay  to  the  trustee  the  cash  surrender  value  of  the 
policies  when  ascertained,  but  the  trustee  denied  such  right  and  also  the 
right  of  the  executor  to  the  balance  of  the  proceeds  of  the  policies. 

The  present  case  was  argued  at  the  same  time*as  the  case  of  Burling- 
ham  v.  Grouse  (228  U.  S.  459),  and  in  so  far  as  it  is  like  that  case  the 
principles  therein  laid  down  are  controlling.  The  present  case  has, 
however,  a  feature  not  directly  involved  in  the  case  of  Burlingham  v. 
Grouse,  because  Judson,  the  insured,  committed  suicide  before  the 
adjudication  in  bankruptcy,  although  after  the  filing  of  the  petition, 
and  it  is  the  contention  of  the  petitioner  that  the  Bankruptcy  Act 
vested  the  title  to  the  property  in  the  trustee  as  of  the  time  of  the  ad- 
judication, and  that  the  death  of  the  bankrupt  between  the  filing  of  the 
petition  and  the  date  of  the  adjudication  made  the  proceeds  of  the 
policies  assets  in  the  hands  of  the  trustee. 

While  it  is  true  that  section  70a  provides  that  the  trustee,  upon  his 
appointment  and  qualification,  becomes  vested  by  operation  of  law  with 
the  title  ofJJie  bankrupt  as  of  the  date  he  was  adjudged  a  bankrupt, 
there  are  lQjhej>  provisions  of  the  statute  which,  we  think,  evidence  the 
intention  to  vest  in  the  trustee  the  title  to  such  property  as  it  was  at 
1  The  statement  in  the  opinion  is  abbreviated. 


SECT.  I.]  EVERETT  V.  JUDSON.  345 

the  time  of  the  filing  of  the  petition.  This  subject  was  considered  in 
Acme  Harvester  Co.  v.  Beekmau  Lumber  Co.,  222  U.  S./ 300,  wherein 
ifwas  held  that,  pending  the  bankrupt  proceedings,  and  after  the  filing 

of  the  petition,  no  creditor  could  obtain  by  attachment  a  lieu  upon  the 
property  which  would  defeat  the  general  purpose  of  the  law  to  dedicate 
the  property  to  all  creditors  alike.1  Section  70a  vests  all  the  property 

1  In  this  case,  speaking  for  the  court  Mr.  Justice  DAT  said : 

Whatever  may  be  the  limitations  of  the  doctrine  declared  by  this  court,  speaking  by 
the  late  Chief  Justice  FULLER  in  Mueller  v.  Nugent,  184  U.  S.  1,  14,  where  it  is  said : 

"It  is  as  true  of  the  present  law  (1898)  as  it  was  of  that  of  1867,  that  the  filing  of 
the  petition  is  a  caveat  to  all  the  world,  and,  in  effect,  an  attachment  and  injunction. 
Bank  v.  Sherman,  101  U.  S.  403.  And  on  adjudication,  title  to  the  bankrupt's  property 
became  vested  in  the  trustee  (Sections  70-21e),  with  actual  constructive  possession,  and 
placed  in  the  custody  of  the  bankruptcy  court." 

It  is  none  the  less  certain  that  an  attachment  of  the  bankrupt's  property  after  the 
filing  of  the  petition  and  before  adjudication  cannot  operate  to  remove  the  bankrupt's 
estate  from  the  jurisdiction  of  the  bankruptcy  court  for  the  purpose  of  the  administra- 
tion under  the  act  of  Congress.  It  is  the  purpose  of  the  bankruptcy  law,  passed  in 
pursuance  of  the  power  of  Congress  to  establish  a  uniform  system  of  bankruptcy 
throughout  the  United  States,  to  place  the  property  of  the  bankrupt  under  the  control  of 
the  court,  wherever  it  is  found,  with  a  view  to  its  equal  distribution  among  the  creditors. 
The  filing  of  the  petition  is  an  assertion  of  jurisdiction  with  a  view  to  the  determination 
of  the  status  of  the  bankrupt  and  a  settlement  and  distribution  of  his  estate.  The  ex- 
clusive jurisdiction  of  the  bankruptcy  court  is  so  far  in  rem  that  the  estate  is  regarded  in 
custodia  leg  is  from  the  filing  of  the  petition.  It  is  true  that  under  section  70a  of  the 
act  of  1898  the  trustee  of  the  estate,  on  his  appointment  and  qualification,  is  vested  by 
operation  of  law  with  the  title  of  the  bankrupt  as  of  the  date  he  was  adjudicated  a  bank- 
rupt, but  there  are  many  provisions  of  the  law  which  show  its  purpose  to  hold  the 
property  of  the  bankrupt  intact  from  the  time  of  the  filing  of  the  petition,  in  order 
that  it  may  be  administered  under  the  law  if  an  adjudication  in  bankruptcy  shall  follow 
the  beginning  of  the  proceedings.  Paragraph  5,  section  70a,  in  reciting  the  property 
which  vests  in  the  trustee,  says  there  shall  vest  "  property  which  prior  to  the  filing  of 
the  petition,  the  bankrupt  could  by  any  means  transfer  or  which  might  have  been  levied 
upon  and  sold  under  judicial  process  against  the  bankrupt."  Under  section  67c  attach- 
ments within  four  months  before  the  filing  of  the  petition  are  dissolved  by  the  adjudi- 
cation in  the  event  of  the  insolvency  of  the  bankrupt,  if  its  enforcement  would  work  a 
preference.  Provision  is  made  for  the  prompt  taking  possession  of  the  bankrupt's 
property,  before  adjudication  if  necessary  (section  69a).  Every  person  is  forbidden  to 
receive  any  property  after  the  filing  of  the  petition,  with  intent  to  defeat  the  purposes  of 
the  act.  These  provisions,  and  others  might  be  recited,  show  the  policy  and  purpose  of  the 
Bankruptcy  Act  to  hold  the  estate  in  the  custody  of  the  court  for  the  benefit  of  creditors 
after  the  filing  of  the  petition  and  until  the  question  of  adjudication  is  determined.  To 
permit  creditors  to  attach  the  bankrupt's  property  between  the  filing  of  the  petition 
and  the  time  of  adjudication  would  be  to  encourage  a  race  of  diligence  to  defeat  the 
purposes  of  the  act  and  prevent  the  equal  distribution  of  the  estate  among  all  creditors 
of  the  same  class  which  is  the  policy  of  the  law.  The  filing  of  the  petition  asserts 
the  jurisdiction  of  the  Federal  court,  the  issuing  of  its  process  brings  the  defendant 
into  court,  the  selection  of  the  trustee  is  to  follow  upon  the  adjudication,  and  thereupon 
the  estate  belonging  to  the  bankrupt,  held  by  him  or  for  him,  vests  in  the  trustee. 
Pending  the  proceedings  the  law  holds  the  property  to  abide  the  decision  of  the  court 
upon  the  question  of  adjudication  as  effectively  as  if  an  attachment  had  been  issued* 
and  prevents  creditors  from  defeating  the  purposes  of  the  law  by  bringing  separate 
attachment  suits  which  would  virtually  amount  to  preferences  in  favor  of  such  creditors. 
See  in  this  connection  the  well-considered  cases  of  State  Bank  v.  Cox  (C.  C.  A.,  7th 
Cir.),  143  Fed.  91;  Board  of  County  Commissioners  v.  Hurley  (C.  C.  A.,  8th  Cir.), 
169  Fed.  92,  94. 


346 


RAND    V.    IOWA   CENTRAL   RAILWAY   CO.  [CHAP.  V. 


in  the  trustee,  which,  prior  to  the  filing  of  the  petition,  the  bankrupt 
could"  by  any  means  have  transferred,  or  which  might  have  been  levied 
upon  and  sold  under  judicial  process  against  him.  The  bankrupt's  dis- 
charge  is  from  all  provable  debts  and  claims  which  existed  on  the  day 
on  which  the  petition  for  adjudication  was  filed.  Zavelo  v.  Reeves,  2U7 
U.  S.  625,  630,  631.  The  schedule  that  the  bankrupt  is  required  to 
file,  showing  the  location  amd  value  of  his  property,  must  be  filed  with 
his  petition. 

We  think  that  the  purpose  of  the  law  was  to  fix  the  line  of  cleavage 
with  reference  to  the  condition  of  the  bankrupt  estate  as  of  the  time 
at  which  the  petition  was  filed,  and  that  the  property  which  vests  in 
the  trustee  at  the  time  of  adjudication  is  that  which  the  bankrupt 
owned  at  the  time  of  the  filing  of  the  petition.  And  it  is  as  of  that 
date  that  the  surrender  value  of  the  insurance  policies  mentioned  in 
section  70a  should  be  ascertained.  The  subsequent  suicide  of  the 
bankrupt  before  the  adjudication  was  an  unlooked-for  circumstance 
which  does  not  change  the  result  in  the  light  of  the  construction 
which  we  give  the  statute. 

It  follows  that  the  judgment  should  be  affirmed.1 


RAND  v.   IOWA   CENTRAL   RAILWAY   COMPANY. 
COURT  OF  APPEALS  OF  NEW  YORK,  JUXE  20-OcxoBER  2,  1906. 


[Reported  in  186  New  York,  58.] 
A-    \  \t 

WILLARD  BARTLETT,  J.  The  plaintiff  in  this  action  recovered  a  ver- 
V^  diet  of  $2,840.00  for  services  alleged  to  have  been  rendered  to  the 
defendant  corporation.  Notwithstanding  the  verdict  the  court  at  Trial 
Term,  by  consent  of  counsel,  entertained  and  finally  granted  a  motion 
to  dismiss  the  complaint.  The  judgment  thereupon  rendered  has  been 
affirmed  by  the  Appellate  Division  upon  the  ground  that  the  plaintiff 
had  been  divested  of  all  title  to  the  claim  in  suit  by  reason  of  the  fact 
that  he  was  adjudicated  a  bankrupt  after  the  cause  of  action  had  ac- 
crued in  his  favor  and  before  the  beginning  of  this  suit.  The  adjudi- 
cation in  bankruptcy  was  deemed  to  have  this  effect,  although  no  trustee 
in  bankruptcy  was  ever  appointed. 

It  is  apparent  from  the  record  that  the  omission  to  appoint  a  trustee 
must  have  been  due  to  the  failure  of  the  plaintiff  to  disclose  the  exist- 
ence either  of  this  claim  or  any  other  property  in  the  bankruptcy  pro- 
'  ceedings.  While  the  concealment  of  any  property  on  the  part  of  a 
bankrupt  must  be  deemed  a  reprehensible  act  as  toward  his  creditors  it 
toy  no  means  follows  that  such  concealment  has  any  bearing  upon  the 
question  as  to  whether  the  bankruptcy  proceedings  have  gone  far 
enough  to  divest  the  bankrupt  of  title.  In  our  judgment  the  proceed- 

1  Andrews  v.  Partridge,  228  U.  S.  479;  Sibley  v.  Nason,  196  Mass.  125,  131,  ace. 


SECT.  1.1  BAND   V.   IOWA  CENTRAL  RAILWAY  CO.    ^      ^  347 

" 


ings  in  the  case  of  the  plaintiff  had  not  progressed  sufficiently  to  deprive 
him  of  the  right  to  maintain  an  action  in  his  own  nanae  in  the  state 
court  upon  the  claim  in  suit.  The  Bankruptcy  Act  of  1898  (section 
70)  provides  that  the  trustee  of  the  estate  of  a  bankrupt  upon  his  ap- 
pointment and  qualification  shall  be  vested  by  operation  of  law  with 
the  title  of  the  bankrupt  as  of  the  date  he  was  adjudged  bankrupt.  It 
is  plain  that  this  provision  can  never  become  effective  until  a  trustee 
in  bankruptcy  shall  have  been  appointed.  Here  none  was  appointed  ; 
hence  the  conditions  did  not  exist  which  were  requisite  to  render  this 
provision  of  section  70  operative. 

Such  was  the  view  necessarily  adopted  by  this  court  in  affirming  the 
judgment  in  the  case  of  Fuller  v.  Jameson,  184  N.  Y.  605,  where  the 
case  turned  upon  the  question  whether  the  title  to  insure  property  had 
been  changed  by  reason  of  an  adjudication  in  bankruptcy  against  the 
owner,  the  insured  property  having  been  burned  after  the  referee  in 
bankruptcy  had  announced  the  appointment  of  a  receiver  but  before 
the  order  of  appointment  was  actually  signed.  We  agreed  with  the 
courts  below  that  the  bankruptcy  proceedings  had  not  gone  far  enough 
at  the  time  of  the  fire  to  divest  the  insured  of  his  title. 

If  that  conclusion  was  correct  it  follows  that  the  present  judgment 
cannot  be  sustained.  The  proposition  of  law  involved  in  that  decision 
was  that  under  section  70  of  the  Bankruptcy  Act  of  1898  the  appoint- 
ment of  a  trustee  is  essential  to  divest  the  bankrupt  of  a  title  to  his 
property.  As  was  said  by  the  Supreme  Judicial  Court  of  Massachu- 
setts in  another  litigation  growing  out  of  the  same  fire  :  '  '  No  change 
of  title  was  effected  until  the  appointment  and  qualification  of  the  trus- 
tee." (Fuller  v.  New  York  Fire  Ins.  Co.,  184  Mass.  12.)  So  here  the 
plaintiff's  title  to  the  chose  in  action,  which  is  the  basis  of  the  present 
suit,  did  not  pass  out  of  him  in  the  bankruptcy  proceedings  since  no 
trustee  was  appointed  to  whom  it  could  pass. 

But  it  is  urged  that  the  defendant  by  payment  of  a  judgment  herein 
to  the  plaintiff  would  not  be  protected  if  it  should  thereafter  be  sued  , 
upon  the  same  cause  of  action  by  any  trustee  of  the  bankrupt  estate  / 
who  might  hereafter  be  appointed.  It  seems  to  us  that  the  defendant  " 
is  not  exposed  to  any  serious  danger  in  this  respect.  "If  in  such  cases 
there  is  a  recovery,  and  any  question  arises  as  to  the  right  of  the 
trustee  or  creditors  to  the  money,  or  as  to  the  defendant's  being  pro- 
tected in  paying  it  to  the  proper  party,  this  may  be  secured  by  subse- 
quent sfe'ps  being  then  taken  for  th.-it  purpose."  ((irillin  r.  Mutual 
ife  Ins.  Co.,  11  Am.  Bank.  Rep.  622.)  We  see  no  reason  why  such 
steps  should  not  be  taken  if  necessary  by  means  of  an  application  to 
the  Bankruptcy  Court.  It  may  very  well  be  that  any  sum  recovered 
by  the  plaintiff  in  the  present  action  will  be  held  by  him  as  trustee  for 
his  creditors  ;  but  this  is  a  matter  which  does  not  concern  the  defend- 
ant so  long  as  the  plaintiff  holds  the  legal  title  to  the  claim  and  the 
defendant  is  secured  against  any  possibility  of  being  compelled  to  pay 
it  twice. 


348 


CLARKE   V.   MINOT. 


[CHAP.  V. 


We  do  not  overlook  the  fact  that  the  conclusion  which  we  have 
reached  upon  the  principal  question  presented  by  this  appeal  is  in  con- 
flict with  the  view  expressed  by  the  Supreme  Court  of  Minnesota  in 
Rand  v.  Sage,  102  N.  W.  Rep.  864  ;  but  while  entertaining  the  highest 
respect  for  that  learned  tribunal,  we  remain  satisfied  with  the  correct- 
ness of  our  own  decision  in  Fuller  v.  Jameson,  supra,  which,  as  has 
already  been  pointed  out,  is  in  harmony  with  the  construction  put  upon 
section  70  of  the  Bankruptcy  Act  by  the  Supreme  Judicial  Court  of 
Massachusetts. 

CULLEN,  Ch.,  J.,  VANN,  WERNER,  HISCOCK  and  CHASE,  JJ.,  concur; 
O'BRIEN,  J.,  absent. 

Judgment  reversed,  etc,1 


J 


CLARKE  v.  MINOT. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  MARCH  TERM,  1842. 
[Reported  in  4  Metcalf,  346.] 

ASSUMPSIT  to  recover  $1,729.02. 

The  parties  submitted  the  case  to  the  court  on  the  following  facts  : 
The  defendants  are  executors  of  the  last  will  of  Mary  Ann  May,  who, 
by  said  will,  directed  them  to  pa}*  $2,000  to  Abby  Alcott,  upon  the 
death  of  Josep.li  May»  The  plaintiff  is  assignee  of  the  estate  of  Amos 
B.  Alcott,  the  husband  of  said  Abby,  under  St.  1838,  c.  163o 

The  estate  of  said  Amos  B.  was  assigned  to  the  plaintiff  by  the  judge 
of  probate  for  the  county  of  Middlesex,  under  the  following  circum- 
stances :  After  the  decease  of  the  above-named  Joseph  May,  the  amount 
of  said  legacy  was  attached  in  the  hands  of  the  defendants,  by  a  trustee 

ocess  in  favor  of  a  creditor  of  said  Amos  B.  Alcott,  in  an  action 

unded  upon  a  demand  which  was,  in  its  nature,  provable  against  the 
estate  of  an  insolvent  debtor,  under  the  said  statute.  Said  process  was 
returnable  and  returned  to  the  Court  of  Common  Pleas  for  the  county 
of  Suffolk,  at  April  term,  1841.  The  present  defendants  charged  them- 
selves, by  their  answers  in  said  process,  as  trustees  of  said  Alcott,  by 
reason  of  said  legac}*,  and  final  judgment  was  rendered  therein  against 
said  Alcott,  as  principal,  and  these  defendants,  as  his  trustees,  for  the 
sum  of  $1,704.42,  and  costs,  on  the  afternoon  of  April  28,  1841,  being 
three  da}*s  before  the  last  day  of  said  term.  The  said  attachment  was 
never  dissolved  bv  said  Alcott. 


After  said  final  judgment  was  rendered,  and  on  the  same  da}',  viz., 
April  28,  1841,  other  creditors  of  said  Alcott  preferred  a  petition  to  the 
said  judge  of  probate,  setting  forth  the  foregoing  facts,  and  praying 
that  proceedings  might  be  instituted,  under  said  statute,  for  dividing 
1  Johnson  v.  Collier,  222  U.  S.  486,  ace. 


SECT.  I.]  CLARKE   V.   MINOT.  349 

and  distributing  said  Alcott's  estate  among  his  creditors.     A  warrant 
was  issued  to  a  messenger,  by  said  judge,  on  the  same  day,  directing 
him  to  take  possession  of  said  estate,  and  "  forthwith  to  give  public 
notice,  and  also  to  said  Alcott's  trustees  before  named,"  [the  defend- 
ants] "  that  a  warrant"  had  issued  against  his  estate,  etc.,  by  adver- 
tisement thereof,  to  be  published  in  the  Boston  Daily  Advertiser,  a 
newspaper  printed  in  Boston,  three  weeks  successively,  etc.    The  mes-      n^j^ 
senger  gave  written  notice  to  each  of  the  defendants  personally,  before 
nine  o'clock  in  the  morning  of  April  29,  1841,  and  within  twenty-four  p£' 
hours  after  the  rendition  of  the  judgment  aforesaid,  and  before  any       '  jf^    MS*** 
execution  had  issued  thereon,  and  caused  the  notification  to  be  pub-&| 
lished  in  said  newspaper,  as  directed  in  the  warrant,  on  the  morning  of    ' 
April  30.     In  the  afternoon  of  April  29,  execution  in  said  suit  against 
said  Alcott,  and  the  defendants,  as  his  trustees,  was  issued,  and  the 
defendants  paid  to  the  officer  the  said  sum  of  $1,729.02,  the  amount 
which  is  claimed  of  them  in  this  action. 

(Several  other  facts,  which  related  to  the  regularity  of  the  proceed- 
ings of  the  judge  of  probate,  etc.,  were  also  stated;  but  as  it  became 
unnecessary  for  the  court  to  decide  the  questions  arising  from  those 
facts,  they  are  not  here  inserted.) 

The  parties  agreed  that  "if  it  is  competent  in  law  for  the  defendants 
to  give  in  evidence  the  foregoing  facts,  or  any  part  thereof ;  and  if, 
under  the  facts  which  may  be  so  given  in  evidence,  the  court  should  be 
of  opinion  that  the  said  attachment  was  not  dissolved,  and  the  payment 
by  the  defendants,  on  execution,  as  above  stated,  was  proper;  the 
plaintiff  shall  become  nonsuit :  Otherwise,  judgment  is  to  be  rendered 
against  the  defendants  for  the  sum  of  $1,729,  and  costs." 

M.  S.  Clarke,  pro  se. 

W.  Minot,  for  the  defendants. 

SHAW,  C.  J.     Several  questions  have  been  argued  in  this  case,  which  ^/ 
it  is  not  necessary  to  decide.     The  question  is,  whether  at  the  time 
when  the  assignment  to  the  plaintiff,  of  the  effects  of  the  insolvent,   C 
under  St.  1838,  c.  163,  took  effect,  so  as  to  transfer  his  property  andlv-lAT"   0* 
choses  in  action,  the  debt  and  sum  of  money,  in  the  hands  of  the  de-  3^4*^ 
fendants,  had  been  so  taken  on  execution,  that  the  assignment  did  not  o" 
transfer  it ;  or  whether  it  was  merely  attached  upon  mesne  process,  so  Qj&*J*& 
that  the  insolvent  proceedings  dissolved  ttie  attachment  and  left  the  £ac£ 
debt  to  pass  to  the  assignee,  for  the  general  benefit  of  the  creditors. 

This  question  depends  upon  the  provisions  of  the  insolvent  law,  de-    ' 
termining  the  time  at  which  the  assignment  shall  take  effect,  so  as  to 
divest  the  property  of  the  insolvent,  in  his  real  and  personal  estate  and 
choses  in  action,  and  vest  the  same  in  the  assignee.     This  clearly  is   y 
not  the  time  of  the  act  of  assignment,  for  that  is  always  some  time  after  /vt 
the  commencement  of  the  proceedings  ;  and  by  the  terms  of  the  statute,  Q^  ^r^lc^v 
it  relates  back  to  an  anterior  period.     One  other  consideration  must  be 
obvious  ;  which  is,  that  the  judge,  by  such  assignment,  merely  executes 
a  power  devolved  by  law  upon  him  ;  he  conveys  no  interest  of  his  own ;  'u 

/ttUAH^/f*^ 


350  CLARKE  V.  MINOT.  [CHAP.  V. 

the  property  which  passes  by  it  is  transferred  by  force  of  the  statute ; 
and  therefore  the  legal  effect  of  such  transfer  depends  little  upon  the 
terms  of  the  assignment,  either  as  to  the  property  transferred,  or  the 
time  at  which  it  shall  take  effect.  But  the  legal  effect  and  operation  of 
the  assignment,  in  these  respects,  must  depend  upon  the  provisions  of 
the  statute.  It  is  purely  a  statute  title  under  which  an  assignee  claims 
either  the  goods  or  choses  in  action  of  the  insolvent ;  and  to  the  statute 
we  must  look  for  the  nature  and  extent  of  that  title. 

The  question  then  recurs,  to  what  time  does  this  assignment  relate 
back?  The  statute,  section  5,  thus  states  it :  "  Which  assignment  shall 
vest  in  the  assignees  all  the  property  of  the  debtor,  both  real  and  per- 
sonal, which  he  could  by  any  way  or  means  have  lawfully  sold,  assigned 
or  convej'ed,  or  which  might  have  been  taken  on  execution  on  any 
judgment  against  him,  at  the  time  of  the  first  publication  of  the  notice 
of  issuing  the  above-mentioned  warrant."  This  leads  directly  to  the 
inquiry,  what  is  the  time  of  the  first  publication  thus  referred  to.  and 
for  this  we  go  to  the  second  section.  The  first  section  having  provided 
for  the  issuing  of  a  warrant  to  a  messenger  to  take  possession,  etc.,  the 
second  section  provides  as  follows:  "The  said  messenger  shall  forth- 
with give  public  notice,  by  advertisement,  in  such  newspapers  as  shall 
be  designated  by  the  judge,  and  also  such  personal  or  other  notice  to 
any  persons  concerned,  as  the  judge  shall  prescribe." 

It  seems  to  have  been  the  obvious  policy  of  the  statute,  to  fix  some 
precise  point  of  time,  at  which  the  whole  property  and  effects  of  the 
debtor  shall  be  deemed  to  have  passed  from  him,  and  vested  in  the  as- 
signees. The  legislature  appear  to  have  intended  that  a  time  should 
be  fixed,  before  which  all  transfers  and  conveyances  of  property  by  the 
debtor,  made  in  good  faith,  and  not  intended  to  give  preferences,  shall 
be  valid ;  so  of  all  payments  in  the  ordinary  course  of  business,  and 
transfers  of  property,  made  without  the  concurrence  of  the  owner,  as 
by  seizure,  or  levy  on  execution. 

The  same  time  is  fixed  on  for  another  purpose,  in  this  statute,  by 
section  3,  which  determines  what  debts  may  be  proved  ;  and  it  pro- 
vides, that  "  all  debts  due  and  payable  from  such  debtor,  at  the  time 
of  the  first  publication  of  the  notice  of  issuing  the  said  warrant,  may 
be  proved."  It  only  remains  then  to  ascertain  what  specific  act  was 
intended  by  these  words,  "  the  first  publication."  The  statute  having 
previously  directed  that  public  notice  should  forthwith  be  given  by  ad- 
vertisement in  such  newspapers,  etc.,  the  natural,  and,  in  our  opinion, 
the  legal  construction  is,  that  it  is  such  notice  by  advertisement. 
Whether  such  notice  may  be  considered  as  made  public  by  advertise- 
ment, when  the  advertisement,  duly  signed,  is  delivered  to  the  printer 
at  the  office  of  publication,  with  orders  to  print  it  in  the  next  paper,  or 
by  putting  it  in  type  and  striking  it  off  on  paper,  or  by  the  first  delivery 
of  one  of  the  newspapers  containing  it,  it  is  not  necessaiy  in  this  case 
to  decide ;  nor,  if  the  latter  is  required,  is  it  necessary  now  to  decide, 
whether  the  publication  must  await  the  regular  day  of  publication  of 


SECT.  I.]  CLARKE   V.   M1NOT.  351 

the  newspaper,  or  whether  it  would  be  a  publication  by  advertisement, 
within  the  statute,  to  anticipate  the  day  of  publication,  by  striking  off, 
issuing  and  distributing,  an  extra  number  of  such  newspaper.  These 
points  are  not  necessar}-  to  the  present  case,  because  there  is  no  inti- 
mation that  there  was  any  publication  by  advertisement,  before  the 
defendants,  as  trustees,  paid  over  the  amount  in  their  hands,  on  execu- 
tion ;  but,  on  the  contrary,  the  personal  notice  given  to  them,  before 
such  pa3*ment,  is  relied  upon  to  show  that  they  paid  in  their  own 
wrong. 

Two  grounds  are  relied  upon,  in  the  ingenious  argument  of  the 
plaintiff,  to  show  that  such  personal  notice  is  sufficient,  in  a  case  like 
the  present.  The  first  is,  that  as  the  whole  subject  of  the  mode  of  no- 
tice is  to  be  directed  by  the  judge  and  stated  in  the  warrant  —  personal 
notice  to  certain  persons  named,  and  advertisements  in  certain  news- 
papers designated  —  the  duty  of  giving  notice  is  but  one  duty,  though 
consisting  of  several  acts,  and  that  the  first  act  done  in  the  performance 
of  this  duty  —  the  whole  being  followed  up  and  done  with  reasonable 
diligence  —  is  the  first  publication.  But  this  seems  inconsistent  with 
the  terms  of  the  statute  ;  "  The  messenger  shall  give  public  notice  by 
advertisement,  and  also  such  personal  or  other  notice,"  etc.  Such  per- 
sonal notice  may  be  private  and  confidential,  and  confined  to  the  per- 
sons named.  Public  notice  and  personal  notice,  instead  of  being  the 
same  thing,  are  plainly  put  in  contradistinction  to  each  other.  To  hold 
that  personal  notice  to  an  individual,  pei'haps  one  having  an  interest  to 
conceal  it,  is  a  publication  of  notice,  would  be  putting  a  construction 
upon  the  language,  not  conformable  to  its  usual  meaning,  especially 
when  the  statute  has  directed  two  forms  of  notice,  one  of  which  is  to 
be  public. 

But  such  construction  seems  equally  inconsistent  with  the  policy  of 
the  statute.  We  are  now  seeking  to  ascertain  and  fix  the  point  of 
time  intended  by  the  statute  as  the  time  at  which  all  the  propert}'  of  the 
debtor  is  changed  and  his  power  over  it  suspended  ;  that  point,  in 
other  words,  prior  to  which  all  payments,  made  by  him  or  to  him,  all 
conveyances  (not  fraudulent)  made  by  him,  all  seizures,  levies,  and 
extents  of  execution  upon  his  property,  shall  be  held  valid,  and  all 
those,  made  after,  void.  It  was  competent  for  the  legislature  to  have 
fixed  any  other  time,  as,  for  instance,  the  application  to  the  judge,  or 
the  act  of  the  judge  in  issuing  the  warrant,  or  the  delivery  of  the  war- 
rant to  the  messenger.  Either  of  these  would  have  afforded  security 
to  the  creditors,  but  might  have  unjustly  interfered  with  the  rights  of 
those  who  had  been  dealing  with  the  debtor,  in  good  faith  and  without 
notice.  The  time  of  first  publication  was  fixed,  obviously  because  that 
act  would,  in  most  cases,  afford  actual  notice  to  those  immediately 
interested  ;  and  it  was  intended  as  constructive  notice  to  all.  But  no 
such  effect  can  be  attributed  to  personal  notice  to  one  individual. 

The  other,  and  we  believe  the  principal  ground  relied  on  by  the 
plaintiff,  is,  that  although  the  time  of  notice  to  the  defendants  was  not 


352  CLARKE   V.   MINOT.  [CHAP.  V. 

the  time  at  which  all  the  estate  and  effects  of  the  debtor  vested  in  the 
assignee,  3ret  that  it  bound  the  property  in  the  defendants'  hands,  and 
prevented  them  from  parting  with  it  by  paying  it  on  an  execution 
against  the  debtor.  The  first  serious  objection  to  this  view  is,  that 
instead  of  fixing  one  point  of  time,  at  which  all  the  propeily  passes,  it 
may  fix  various  times,  according  as  certain  individuals  had  notice  or 
not.  On  the  same  execution,  for  instance,  some  trustees  might  have 
notice,  and  others  not.  According  to  the  principle  contended  for,  some 
would  be  bound  to  pay  over,  and  others  prohibited.  Besides,  to  whom 
shall  personal  notice  be  given,  to  have  the  supposed  effect?  The  de- 
fendants were  mere  stakeholders  ;  they  were  to  pay  over  to  any  person 
lawfully  entitled.  If  the  officer  had  no  notice  of  the  warrant,  and  more 
especiall}"  if  the  creditor,  fo*1  whom  he  acted,  had  none,  how  was  notice 
to  the  mere  holder  of  the  property  to  affect  their  rights  ?  Suppose  the 
property  in  the  hands  of  the  trustees  had  been  chattels,  to  be  sold  on 
execution  instead  of  money,  would  they  not  have  been  bound  to  expose 
them?  And  if  they  had  so  exposed  them,  might  not  the  officer  have 
lawfully  taken  them  ? 

But  it  is  further  insisted,  as  a  general  rule  of  law,  that  when  con- 
structive notice  is  prescribed  by  statute,  in  order  to  give  full  effect  to 
conveyances,  if  actual  and  express  notice  is  shown,  as  to  any  indi- 
vidual, it  supersedes  the  necessity  of  showing  such  constructive  notice 
in  regard  to  him.  This  brings  us  in  fact  to  the  precise  point  of  the 
case.  What  property  passed  by  this  assignment?  The  answer  is,  all 
that  the  debtor  had  at  the  time  of  the  first  publication  of  notice.  But 
if  it  had  been  rightfully  paid  away,  transferred,  or  taken  in  execution, 
before  that  time,  then  it  was  not  his,  and  the  assignment  did  not  reach 
it.  The  notice  that  the  defendants  had  was  not  that  an  act  had  been 
done  which  transferred  the  propert}*  from  the  debtor,  and  which  only 
required  publication  to  give  it  effect,  but  that  proceedings  had  been 
commenced  which,  if  followed  by  a  publication  of  notice  and  other 
acts,  would  transfer  the  property.  This  is  not  the  notice  contemplated 
by  the  rule.  The  most  familiar  case  is  that  of  the  registration  of  a 
deed,  which  is  made  necessary  to  secure  the  estate  from  being  attached 
as  the  property  of  the  grantor.  But  if  an  attaching  creditor  has  notice 
that  his  debtor  has  conveyed  his  estate,  though  the  deed  is  not  regis- 
tered, still  he  is  bound  by  his  actual  notice.  The  reason  is  that,  as 
between  the  grantor  and  grantee,  the  propert}"  has  actually  passed  by 
the  execution  and  delivery  of  the  deed,  and  actual  notice  to  him  is 
equivalent  to  that  registration,  the  purpose  of  which  was  to  give  him 
notice.  But  the  fact  of  which  he  has  notice,  in  such  case,  is  that  the 
estate  has  been  actually  conveyed.  Notice  that  another  is  about  to 
obtain  a  deed,  though  it  is  actually  obtained,  but  not  registered,  before 
his  attachment,  does  not  defeat  his  attachment.  Gushing  v.  Kurd,  4 
Pick.  253.  If  the  law  were  that  a  deed  should  have  no  effect  to  trans- 
fer estate  till  in  fact  registered,  then  notice  of  an  unregistered  deed 
would  not  prevent  another  from  attaching.  The  only  difference  between 


SECT.  I.]  CLARKE   V.   MINOT.  353 

that  and  the  present  case  is  this :  that  would  have  a  prospective,  and 
this  has  a  retrospective  relation.  The  distinction  between  this  and 
most  of  the  cases  cited,  is  that  in  them  registration  or  publication  is 
required  merety  for  the  purpose  of  giving  notice  of  an  act  which,  of 
itself,  transfers  or  affects  property.  In  this  case,  the  publication  is 
necessary  to  fix  a  point  of  time  at  which  the  deed  shall  take  effect,  and 
without  which  the  deed  is  inoperative.  Suppose  a  debtor  should  happen 
to  be  so  situated  that  he  has  only  five  debtors  and  five  creditors,  and 
personal  notice  is  given  to  all  of  them,  and  no  public  notice  is  ever 
given,  could  it  be  maintained  that  the  mere  official  assignment  under 
this  statute  would  pass  the  property  of  the  debtor  to  the  assignee,  and 
enable  the  latter  to  sue  in  his  own  name,  and  perform  all  the  functions 
of  an  assignee  under  the  statute? 

This  decision  is  not,  we  think,  opposed  to  the  case  of  Walker  v.  Gill, 
2  Bailey,  105,  cited  by  the  plaintiff,  in  which  the  learned  judge  says, 
he  is  "  not  aware  of  any  instance  in  which  the  law  requires  an  act  to 
be  done  for  the  purpose  of  giving  notice,  and  regards  the  doing  of  it 
as  implied  notice,  that  the  parties  concerned  will  not  be  affected  with 
express  notice."  That  was  an  action  by  a  creditor  against  an  admin- 
istrator, on  a  demand,  of  which,  by  the  statute  of  South  Carolina,  he 
should  have  given  notice  within  one  year  after  administration  taken ; 
and  the  defendant,  to  avoid  the  effect  of  the  statute,  relied  on  the  fact 
that  the  plaintiff  had  actual  notice.  But  the  court  proceeded  on  the 
ground  that  publication  was  not  necessary,  as  a  condition,  to  give  effect 
to  the  limitation,  but,  like  registration  of  a  conveyance,  only  to  give 
notice.  Had  that  statute,  like  ours  on  the  same  subject,  made  the  term 
of  limitation  commence  at  the  time  of  giving  public  notice,  actual  per- 
sonal notice  to  an  individual  would  not  have  made  the  statute  take 
effect  as  to  him  :  Emerson  v.  Thompson,  16  Mass.  429  ;  nor  have  been 
a  substitute  for  the  publication,  which  alone  can  call  the  statute  into 
effectual  opposition. 

But  the  distinction  is,  that  the  publication  under  the  insolvent  act  of 
1838,  although  one  purpose  of  publication  is  to  give  notice  of  the  pro- 
ceedings, is  not  required  for  the  purpose  of  giving  notice  of  another 
substantive  and  efficient  act,  but  is  itself  the  act  which  gives  effect  and 
operation  to  the  subsequent  deed  of  assignment,  fixes  the  time  at  which 
it  takes  effect,  and  without  which,  such  subsequent  assignment  has  no 
effect  to  transfer  the  debtor's  property. 

Plaintiff  nonsuit.1 

1  Similarly,  in  the  English  law,  notice  that  a  debtor  is  about  to  commit  an  act  of 
bankruptcy  (which  fixes  the  time  to  which  the  trustee's  title  relates)  will  not  invalidate 
transactions  with  the  debtor.  Ex  parte  Hallifax,  2  Mont.  D.  &  DeG.  544 ;  Hocking  v. 
Acraman,  12  M.  &  W.  170;  Ex  parte  Arnold,  3  Ch.  D.  70.  The  Bankruptcy  Act  of 
1883  provides,  however,  section  4  (A),  that  it  is  itself  an  act  of  bankruptcy  "  if  the 
debtor  gives  notice  to  any  of  his  creditors  that  he  has  suspended,  or  that  he  is  about 
to  suspend,  payment  of  his  debts." 


3:>4  BUTLER  V.   MULLEN.  [CHAP.  V. 


BUTLER  y.  MULLEN. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  NOVEMBER,  1868. 
[Reported  in  100  Massachusetts,  453.] 

CONTRACT  by  the  assignees  in  insolvency  of  Henry  J.  Holbrook,  an 
insolvent  debtor,  to  recover  a  sum  of  money  due  from  the  defendants 
to  Holbrook. 

It  was  admitted  that  the  defendants  were  liable  for  the  amount 
claimed,  unless  the  following  agreed  facts  furnished  a  defence. 

The  defendants  were  summoned  as  the  trustees  of  Holbrook  in  an 
action  brought  by  Simeon  Snow  against  Holbrook,  and  were  charged 
as  trustees  on  the  13th  of  October,  1866,  on  default ;  judgment  was 
entered  against  Holbrook  on  the  19th  ;  execution  issued  thereon  on  the 
20th ;  and  the  defendants,  on  the  22d  of  the  same  October,  paid  over 
the  said  amount  to  the  deputy  sheriff,  who  held  the  execution,  on  his 
demand. 

On  the  10th  of  October,  1866,  a  warrant  in  insolvency  was  issued 

'  ^         ''  against  Holbrook  ;  the  first  publication  of  the  issuing  thereof  was  made 

on  the  llth  of  October;   and  on  the  first  of  November  following  the 

fc  />vC4  CH     plaintiffs  were  appointed  assignees,  and  received  an   assignment  of 

t^jy^jjL,         Holbrook's  property. 

No  suggestion  of  Holbrook's  insolvency  was  ever  made  on  the  record 
/  .      in  the  case  of  Snow  against  Holbrook,  and  no  notice  of  said  proceed- 
ings in  insolvency  was  ever  received  by  the  defendants,  nor  was  any 
given  to  them,  unless  the  issuing  of  the  warrant  in  insolvency,  and  the 
1    first  publication  of  the  issuing  of  the  same,  were  notice  to  them. 

On  the  above  facts,  in  the  Superior  Court,  judgment  was  ordered  for 
HA*<$  Ittb^JL  the  defendants,  and  the  plaintiffs  appealed. 
E.  Avery,  for  the  plaintiffs. 
H.  W.  Bragg,  for  the  defendants. 

HOAR,  J.  The  defendants  were  summoned  as  trustees,  and  charged 
as  such  upon  their  default  on  the  13th  of  October,  1866  ;  and  a  judg- 
ment being  entered  against  Holbrook,  the  principal  defendant,  on  the 
19th  of  the  same  October,  execution  issued  on  the  20th  of  the  same 
month,  and  they  paid  over  the  amount  due  upon  the  execution,  upon 
the  demand  of  the  officer  who  held  it,  on  the  twenty-second  day  of 
the  same  month.  A  warrant  of  insolvency  issued  against  Holbrook, 
October  10,  1866,  the  first  publication  was  made  on  the  next  day,  and 
the  plaintiffs  were  appointed  assignees  of  his  estate  on  the  1st  of  No- 
vember following. 

Upon  these  facts  we  think  the  defence  to  this  action  cannot  be  main- 
tained. The  payment  by  the  defendants  upon  the  judgment  against 
them  as  trustees  was  a  valid  payment  as  against  Holbrook,  his  execu- 
tors and  administrators.  Gen.  Sts.  c.  142,  §  37.  Bnt  it  had  no  validity 


SEOT.  II.]  HUNTER   V.    POTTS.  355 

against  a  party  whose  title  intervened  before  the  judgment  against  them 
was  rendered,  and  whose  title  was  superior  to  the  attachment  by  which 
the  fund  had  been  held.  Not  only  does  the  assignment,  when  made, 
relate  back  to  the  first  publication  of  the  notice  in  insolvenc}',  and  vest 
all  the  property  of  the  debtor  in  the  assignee,  but  before  the  assignment 
the  debtor  is  so  far  divested  of  his  propert}-,  by  virtue  of  the  issuing  of 
the  warrant,  that  from  the  first  publication  no  transfer  or  conveyance 
of  it  can  be  made  which  will  have  any  validity  against  the  assignee. 
Gen.  Sts.  c.  118,  §  44;  Clarke  v.  Minot,  4  Met.  346;  Judd  v.  Ives, 
Ib.  401  ;  Edwards  v.  Sumner,  4  Gush.  393 ;  Gallup  v.  Robinson,  11 
Gray,  20.  By  the  assignment,  the  debt  which  the  defendants  owed  to 
Holbrook  on  the  llth  of  October  became  due  to  the  plaintiffs,  and 
vested  in  them  as  a  chose  in  action  on  and  after  that  day  ;  and  a  sub- 
sequent payment  to  Holbrook  or  to  any  other  person  other  than  the 
plaintiffs  does  not  discharge  the  debt. 

The  defendants  cannot  be  allowed  to  show  that  the}*  had  no  notice  of 
the  insolvency,  as  the  publication  of  the  notice  of  the  issuing  of  the 
warrant  is  legal  notice  to  all  persons,  by  which  they  are  bound.  Clarke 
v.  Ives,  iibi  supra  /  Edwards  v.  Sumner,  ubi  supra ;  Hall  v.  Winston, 
5  Allen,  126 ;  5  Bac.  Ab.  Trover,  E.  12. 

Judgment  for  the  plaintiffs.* 


SECTION  II. 
SITUS  OF  THE  PROPERTY. 

HUNTER  v.  POTTS. 
KING'S  BENCH,  1791. 

[Reported  in  4  Term  Reports,  1 82.] 

THIS  was  an  action  for  money  had  and  received,  to  which  the  defend- 
ant pleaded  the  general  issue.  On  the  trial  before  Lord  KENYON  at 
Guildhall  a  special  verdict  was  found,  which,  after  setting  forth  the 
formal  parts  (namely,  the  trading,  the  petitioning  creditor's  debt,  the 

1  Willis  v.  Freeman,  12  East,  656;  Coles  v.  Coles,  6  Hare,  517;  Re  Calcott  [1898], 

2  Ch.  460;  Couner  v.  Long,  104  U.  S.  228,  232;  Re  Gregg,  1  Hask.  173;  Re  Lake, 

3  Biss.  204;  Howard  o.  Crompton,  14  Blatch.  328;  Sicard  v.  Buffalo,  &c.  Ry.  Co.,  15 
Blatch.  525;    Stevens  v.  Mechanics'  Bank,  101   Mass.   109;    Palmer  v.  Jordan,  163 
Mass.  350;  Duffield  v.  Horton,  73  N.  Y.  218,  ace.  Cf.  Toof  v.  Bank,  206  Fed.  250. 

It  has  been  held  that  even  an  officer  acting  under  the  order  of  a  court  is  liable  for 
dealing  in  good  faith  with  property  of  a  bankrupt  after  the  day  to  which  the  trustee's 
title  has  relation.  Cooper  v.  Chitty,  1  Burr.  20;  Balme  v.  Hutton,  1  Cromp.  &  M. 
262;  Garland  v.  Carlisle,  4  Cl.  &  Fin.  693.  But  the  UnjtecLStatfia.Suprfime.  Court 
refnspil  tp  follow  i;hnHft  precedents.  Conner  v.  Long,  104  U.  S.  228.  See  also  Johnson 
».  Bishop,  1  Woolw.  324 ;  Bradley  r.  Frost,  3  Dill.  457. 


356  HUNTER   V.   POTTS.  [CHAP.  V. 

bankruptcj',  the  commission,  and  assignment),  stated  that  the  bank- 
rupts before  their  bankruptcy  were  indebted  to  the  defendant  on  a 
contract  made  in  England  ;  at  which  time,  and  also  at  the  time  of  the 
bankruptcy,  and  until  the  assigning  of  the  attachment  hereafter  men- 
tioned, all  the  parties  were  resident  in  England  ;  that  after  the  issuing 
of  the  commission  of  bankrupt,  and  the  making  of  the  assignment,  the 
defendant,  knowing  thereof,  gave  orders  to  his  attorney  in  Rhode 
Island,  North  America,  to  attach  the  effects  of  the  bankrupts  in  that 
island;  in  consequence  of  which  the  attorney,  in  Ma}-,  1785,  attached, 
in  the  regular  wa}-,  certain  moneys  in  the  hands  of  J.  and  W.  Russell, 
which  were  due  from  them  to  the  bankrupts  at  the  time  of  the  bank- 
ruptcy;  and  in  November,  1786,  obtained,  in  the  Court  of  Common 
Pleas  in  Rhode  Island,  a  regular  judgment  against  the  bankrupts  for 
£496  12s.  Bd.  and  costs,  which  sum  he  afterwards  received  and  remitted 
to  the  defendant  in  England,  who  claims  to  hold  the  same  to  his  own 
use.  The  verdict  also  stated  that  the  proceedings  of  the  court  in  Rhode 
Island  were  continued  by  imparlances  from  May,  1785,  to  November, 
1786,  at  the  request  of  the  Russells,  in  order  that  the  bankrupts  might 
have  notice  of  such  proceedings. 

Lord  KENJON,  C.  J.,  now  delivered  the  opinion  of  the  court. 

In  the  argument  in  this  case  many  quotations  were  made  from  the 
writers  on  the  civil  law,  which  it  is  not  necessary  to  consider  in  deter- 
mining this  question.  Generally  speaking,  it  must  be  admitted  that 
personal  property  must  be  governed  by  the  laws  of  that  country  where 
the  owner  is  domiciled.  Neither  do  we  mean  to  break  through  the  rule 
that  the  courts  of  one  county  ought  to  pay  a  proper  deference  to  the 
decisions  of  the  courts  in  another  having  competent  jurisdiction,  where 
the  facts  on  which  the  decision  was  made  were  fairly  disclosed  to  such 
court.  But  the  general  question  here  is,  whether  the  assignment  which 
was  executed  by  the  commissioners  of  the  bankrupt  was  sufficient  to 
vest  the  bankrupt's  property  in  the  plantations  abroad  in  the  assignees 
under  the  commission ;  because  if  it  did  so  vest  at  the  time  of  the 
assignment,  it  is  immaterial  to  consider  in  this  case  how  far  the  rela- 
tion under  the  bankrupt  laws  should  take  effect  in  Rhode  Island,  since 
the  assignment  was  executed  anterior  to  the  time  when  the  attachment 
suit  was  there  commenced.  Therefore  the  only  question  here  is,  whether 
or  not  the  propert}-  in  that  island  passed  by  the  assignment  in  the  same 
manner  as  if  the  owner  (the  bankrupt)  had  assigned  it  by  his  voluntary 
act.  And  that  it  does  so  pass  cannot  be  doubted,  unless  there  were 
some  positive  law  of  that  country  to  prevent  it.  Eveiy  person  having 
property  in  a  foreign  country  may  dispose  of  it  in  this  ;  though  indeed 
if  there  be  a  law  in  that  country  directing  a  particular  mode  of  convey- 
ance, that  must  be  adopted ;  but  in  this  case  no  law  of  that  kind  is 
stated,  and  we  cannot  conjecture  that  it  was  not  competent  to  the  bank- 
rupt himself,  prior  to  the  bankruptcj',  to  have  disposed  of  his  property 
as  he  pleased.  Now,  the  bankrupt  statutes  have  expressly  enacted 
that  the  commissioners  may  assign  all  the  property  of  the  bankrupt  in 


SECT.  II.]  HUNTER   V.   POTTS.  357 

the  most  extensive  words  ;  and,  therefore,  on  the  general  reason  of  the 
thing,  if  there  be  no  positive  decision  to  the  contrary,  ho  doubt  could 
be  entertained  but  that,  by  the  laws  of  this  country,  uncontradicted  by 
the  laws  of  any  other  country  where  personal  property  may  happen  to 
be,  the  commissioners  of  a  bankrupt  may  dispose  of  the  personal  prop- 
erty of  a  bankrupt  resident  here,  though  such  property  be  in  a  foreign 
country.  Then  let  us  consider  the  decisions  which  have  been  made  on 
this  subject.  The  case  of  M'Intosh  v.  Ogilvie  agrees  with  our  opinion. 
There,  it  is  to  be  observed,  that  Lord  Hardwicke,  on  his  being  told 
that  the  defendant  in  that  case  had  not  obtained  a  sentence  before  the 
bankruptcy,  said  :  "  Then  it  is  like  a  foreign  attachment,  by  which  this 
court  will  not  suffer  a  creditor  to  gain  priority,  if  no  sentence  were 
pronounced  before  the  bankruptcy."  In  another  part  he  intimated  a 
strong  opinion  that  the  property  in  Scotland  should  not  be  taken  by 
one  creditor  to  the  prejudice  of  the  rest  of  the  creditors  here.  And  at 
the  close  of  that  case  the  Solicitor-General  observed  that  this  precise 
question  had  been  determined.  But  the  case  of  Beckford  v.  Turner 
was  relied  on,  when  this  case  was  first  argued,  as  a  determination  in 
favor  of  the  attachment  creditor  ;  but  certainly  no  question  of  that  kind 
was  stated  among  the  reasons  signed  by  the  counsel,  nor  was  it  brought 
in  judgment  in  that  case.  The  single  question  there  was  whether  or 
not  the  proceedings  in  the  island  of  Jamaica  were  conformable  to  the 
mode  pointed  out  by  the  act  of  assembly  there.  And  if  it  had  been 
stated  in  the  reasons  signed  in  that  case,  this  question  could  not  have 
arisen  in  deciding  it.  There  was  indeed  a  dictum,  rather  than  a  deci- 
sion, in  Wilson's  case  that  the  assignment  by  the  commissioners  had 
no  other  effect  than  a  voluntary  assignment.  I  believe  the  doubt  in  all 
these  cases  has  arisen  from  not  attending  to  the  meaning  of  the  word 
"  voluntary."  It  has  been  contended  that  it  means  "  without  a  valu- 
able consideration ;  "  but  it  is  impossible  to  consider  it  in  that  light, 
for  in  the  case  of  a  bankruptcy  there  must  be  a  consideration.  It 
means  the  bankrupt's  own  voluntary  act,  as  contradistinguished  from 
a  compulsory  act  by  law.  Therefore,  on  the  reason  of  the  thing,  even 
without  any  authorities,  we  have  no  difficulty  in  saying  that  the  title  of 
the  plaintiffs  must  prevail.  For  it  must  be  remembered  that  during  the 
progress  of  this  business  all  these  parties  resided  in  England  ;  that  the 
defendant,  knowing  of  the  commission  and  of  the  assignment,  in  order 
to  gain  a  priorit}',  transmitted  an  affidavit  to  Rhode  Island  to  obtain  an 
attachment  of  the  bankrupt's  property  there,  in  violation  of  the  rights 
of  the  rest  of  the  creditors,  which  were  then  vested ;  but  such  an 
attempt  cannot  be  sanctioned  in  a  court  of  law.  But  in  addition  to 
these  reasons,  the  decisions  which  have  been  made  on  this  subject 
remove  all  doubts  whatever.  It  is  not  necessary  to  go  through  them, 
because  they  were  mentioned  in  the  argument,  and  are  collected  in 
III.  Bl.  Rep.  C.  B.,  131  and  132  n. ;  Salomons  v.  Ross,  before  Lord 
Bathurst ;  Jollet  and  another  v.  Deponthieu  and  Barril,  before  Lord 
Camden ;  and  Neale  and  another  v.  Cottingham  and  another,  in  Ire- 


358  LONG  V.   GIRDWOOD.  [CHAP.  V. 

land,  before  Lord  Chancellor  Lifford.  The  second  of  these,  I  have 
reason  to  believe,  was  considered  by  Lord  Camden  as  a  very  clear  case, 
for  he  did  not  think  it  important  enough  even  to  make  a  note  of  it  in 
his  book.  And  although  the  last  case  was  not  decided  in  this  country, 
yet  it  was  determined  by  a  very  respectable  authority,  Lord  Lifford, 
assisted  by  several  of  the  judges;  and  that  noble  lord  was  conversant 
with  the  laws  of  this  country,  having  sat  on  the  bench  here  for  several 
years  before  he  went  to  Ireland  ;  and  we  know  also  that  Davis's  reports 
of  the  decisions  in  that  county  are  cited  as  authority  here.  There  are, 
therefore,  these  three  decisions,  in  addition  to  the  case  before  Lord 
Hardwicke,  in  support  of  our  opinion  ;  and  there  are  none  to  the  con- 
trar}',  except  indeed  what  was  said  in  Wilson's  case,  and  that  seems  to 
have  turned  on  mistaking  the  import  of  the  word  "voluntary." 

We  are,  therefore,  clearly  of  opinion  that  the  plaintiffs  are  entitled 
to  judgment.  Judgment  for  the  plaintiffs.1 


LONG  v.  GIRDWOOD. 
SUPREME  COURT  OF  PENNSYLVANIA,  1892. 

[Reported  in  150  Pennsylvania,  413.] 

McCoLLUM.  J.  The  debt  for  the  collection  of  which  the  writ  of 
foreign  attachment  was  issued  was  contracted  in  a  foreign  country. 
Long  and  Bisby,  who  are  the  plaintiffs  in  the  attachment  and  the  appel- 
lants here,  are,  and  since  1863  have  been,  domiciled  at  Hamilton  in 
Canada  and  engaged  in  business  there ;  the  defendants  in  the  attach- 
ment are  citizens  of  Scotland  and  members  of  the  firm  of  Girdwood  & 
Forrest,  wool  brokers  at  Glasgow,  which  is  indebted  to  the  plaintiffs  in 
the  sum  of  $1,798.85  ;  McCallum,  Crease,  &  Sloan,  who  are  the  gar- 
nishees  in  the  attachment  and  the  appellees  in  this  issue,  are  citizens 
of  Pennsylvania,  doing  business  in  Philadelphia,  and  indebted  to  the 

1  Affirmed  sub  nom.  Phillips  v.  {lunter,  2  H.  Bl.  402 ;  Sill  v.  Worswick,  1  H.  Bl. 
665;  Neale  v.  Cottingham,  1  II.  Bl.  133,  n.;  Ex  parte  Blakes,  1  Cox,  Eq.  398;  Royal 
Bank  v.  Cuthbert,  1  Rose,  462;  Selkrig  v.  Davies,  2  Dow,  230;  Holmes  v.  Remsen, 
4  Johns.  Ch.  460  (overruled),  ace.  See  also  Chipman  v.  Manufacturers'  Bank,  156 
Mass.  147. 

Similarly  the  English  courts  hold  that  personal  property  in  England  passes  by  a 
foreign  decree  in  bankruptcy.  Solomons  v.  Ross,  1  H.  Bl.  131,  n. ;  Jollet  c.  Depon- 
thieu,  1  H.  Bl.  132,  n. ;  Potter  v.  Brown,  5  East,  124,  131 ;  Ex  parte  Cridland,  3  V.  & 
B.  94.  Conf.  Re  Blitham,  35  Beav.  219,  L.  R.  2  Eq.  23;  Re  Davidson's  Trusts,  L.  R. 
15  Eq.  383. 

It  is  universally  held  that  foreign  real  estate  does  not  pass.  Selkrig  v.  Davies, 
2  Dow,  230;  Ex  "parte  Rogers,  16  Ch.  1).  665;  Oakey  v.  Bennett,  11  How.  33;  Chip- 
man v.  Manufacturers'  Bank,  156  Mass.  147;  Chipman  v.  Peabody,  159  Mass.  420; 
Barnett  v.  Pool,  23  Tex.  517.  See  also  Callender  v.  Colonial  Secretary,  [1891]  A  pp. 
Cas.  460;  Story,  Conflict  of  Laws  (8th  ed.),  591  seq. 


SECT.  II.]  LONG   V.   GIRDWOOD.  359 

firm  of  Girdwood  &  Forrest  in  the  sum  of  $2,332.44.  On  the  llth  of 
October,  1884,  proceedings  were  instituted  under  the  bankrupt  laws  of 
Scotland  for  the  sequestration  of  the  estates  of  the  firm  of  Girdwood  & 
Forrest,  and  of  the  several  members  thereof,  for  the  benefit  of  their 
creditors  ;  and  on  the  27th  of  that  month  Thomas  Jackson  was  con- 
firmed as  trustee  of  said  estates,  with  full  right  and  power  to  sue  for 
and  recover  the  same,  wherever  situated,  for  the  purposes  of  the  trust. 
Subsequent  to  these  proceedings,  and  with  notice  of  them,  Long  and 
Bisby  came  to  Pennsylvania,  issued  a  writ  of  foreign  attachment  against 
Girdwood  &  Forrest,  and  summoned  McCallum,  Crease,  &  Sloan  as 
garnishees. 

The  question  presented  by  the  facts  above  stated  is  whether  the 
Canadian  creditors  of  the  firm  of  Girdwood  &  Forrest  can,  by  process 
of  attachment  in  Pennsylvania,  acquire  a  preference  over  other  credit- 
ors of  that  firm  who  reside  in  Scotland  or  elsewhere  within  the  British 
dominions,  when  the  effects  of  the  firm  have  been  duly  transferred 
under  the  laws  of  Scotland  to  a  trustee  for  the  benefit  of  all  its  credit- 
ors. Harrison  v.  Steriy  et  al,  5  Cranch,  289  ;  Green  v.  Van  Buskirk, 
7  Wall.  139,  and  Warner's  Appeal,  13  W.  N.  505,  are  cited  by  the 
appellants  to  sustain  their  contention  for  a  preference,  but  these  cases 
are  not  in  point.  In  Harrison  v.  Sterry  et  al.  the  attachments  were 
prior  to  the  assignment.  In  Green  v.  Van  Buskirk  the  main  question 
was  whether  the  judgment  of  an  Illinois  court  in  an  attachment  pro- 
ceeding should  have  the  same  effect  in  New  York  on  the  title  to  the 
property  attached  as  in  the  State  in  which  it  was  rendered,  and  it  was 
held  that  the  judgment  of  a  New  York  court  which  denied  to  the  Illi- 
nois judgment  this  effect  was  erroneous.  The  contest  was  between  the 
holders  of  a  chattel  mortgage  and  an  attaching  creditor  of  the  mort- 
gagor. Bates,  who  resided  in  Troy,-  N.  Y.,  was  the  owner  of  certain 
iron  safes  in  Chicago,  111.,  and  to  secure  his  indebtedness  to  Van  Bus- 
kirk and  others  executed  and  delivered  to  them  a  chattel  mortgage  on 
the  safes.  Two  days  after  the  execution  and  delivery  of  this  mortgage, 
Green,  who  was  also  a  creditor  of  Bates  and  a  citizen  of  New  York, 
instituted  attachment  proceedings  in  Illinois,  by  virtue  of  which  the 
safes  were  levied  upon  and  subsequently  sold  in  satisfaction  of  his  debt. 
At  the  time  this  attachment  was  issued  the  mortgage  had  not  been 
recorded  in  Illinois,  possession  of  the  safes  had  not  been  delivered 
under  it,  and  Green  did  not  know  of  its  existence.  By  the  laws  of 
Illinois  the  mortgage  was  of  no  validity  against  the  rights  and  interests 
of  third  persons,  and  the  attaching  creditor  was  on  the  footing  of  a 
purchaser.  The  proceedings  were  regular,  and  under  these  laws  a  jus- 
tification of  the  creditor  in  the  seizure  and  sale  of  the  property.  In  a 
suit  brought,  by  the  mortgagees  against  the  attaching  creditor  in  a  New 
York  court,  for  taking  and  converting  the  sales,  it  was  adjudged  on 
appeal  to  >the  Supreme  Court  of  the  United  States  that  the  attachment 
proceedings  in  Illinois  constituted  a  valid  defence.  The  points  covered 
by  the  judgment  were  that  a  State  has  the  right  to  regulate  the  transfer 


360  LONG   V.   GIRDWOOD.  [CHAP.  V. 

of  personal  property  situate  within  its  limits,  and  to  subject  the  same 
to  process  and  execution  in  its  own  way  by  its  own  laws,  and  that 
the  decrees  of  its  courts  in  conformity  with  these  laws  are  conclusive  in 
other  jurisdictions.  In  Warner's  Appeal  the  attaching  creditors  at  the 
time  of  issuing  their  attachment  had  no  actual  knowledge  of  the  assign- 
ment, and  were  therefore  held  to  be  within  the  protection  of  the  proviso 
to  the  first  section  of  the  Act  of  May  3,  1855,  P0  L.  415.  It  does  not 
appear  in  the  report  of  the  case  that  they  were  citizens  of  the  State  in 
which  the  assignment  was  made,  and  the  question  of  comity  between 
the  States  was  not  raised  or  considered.  But  in  Bacon  v.  Home,  123- 
Pa.  452,  it  was  distinctly  held  by  this  court  that  a  resident  of  a  foreign 
State,  in  which  an  assignment  was  made  by  a  debtor  for  the  benefit  of 
his  creditors,  could  not  come  into  Pennsylvania  and  seize  property  of 
the  assignor  in  a  suit  in  foreign  attachment.  It  was  stated  in  the  case 
last  cited  that  the  manifest  object  of  the  Act  of  1855  was  to  protect 
our  own  citizens,  and  it  was  plainly  intimated  that  none  but  Pennsyl- 
vania creditors  can  invoke  its  protection.  It  matters  not  whether  the 
attaching  creditor  is  a  resident  of  the  State  in  which  the  assignment  is 
made  or  of  another  State  foreign  to  this  jurisdiction.  If  he  is  a  citizen 
of  a  foreign  State  he  can  receive  no  aid  here  in  an  effort  to  obtain  a 
preference  in  disregard  of  the  assignment.  Lowry  v.  Hall,  2  W.  &  S. 
131;  Merrick's  Estate,  5  W.  &  S.  9  ;  and  Bacon  v.  Home,  supra. 
This  rule  rests  on  comity  between  the  States,  and  the  only  exception  to 
it  is  in  favor  of  our  own  citizens.1 

1  In  many  States  in  this  country  an  assignment  by  operation  of  the  law  of  a  foreign 
jurisdiction  is  held  ineffectual,  even  against  citizens  of  that  foreign  jurisdiction,  to 
transfer  property  situated  within  the  jurisdiction  of  the  forum.  Harrison  v.  Sterry, 
5  Cranch,  289 ;  Taylor  v.  Geary,  Kirby,  313 ;  Upton  v.  Hubbard,  28  Conn.  274,  284 ; 
Rhawn  v.  Pearce,  1 10  111.  350 ;  Jenks  v.  Ludden,  34  Minn.  482,  486 ;  Sturtevant  p. 
Armsby  Co.,  66  N.  H.  557,  559  (semble) ;  but  see  Crippen  v.  Rogers,  67  N.  H.  207); 
Hibernia  Nat.  Bank  v.  Lacombe,  84  N.  Y.  367;  Earth  v.  Backus,  140  N.  Y.  230;  Ex 
parte  Dickinson,  29  S.  C.  453  (semble).  But  see  contra,  Reynolds  v.  Adden,  136  U.  S. 
348  (law  of  La.) ;  Burk  v.  McHenry,  1  Harr.  &  McH.  236 ;  Mulliken  v.  Aughinbaugh, 

1  Pa.  117;    Bagby  v.  Atlantic,  &c.  R.  R.  Co.,  86  Pa.  291;    Oilman  v.  Ketcham,  84 
Wis.  60. 

It  is  universally  held  in  this  country  that  such  an  assignment  is  ineffectual  against 
citizens  of  the  State  where  the  property  is  situated.  See,  besides  cases  above  cited, 
Ogden  v.  Saunders,  12  Wheat.  213;  Crapo  v.  Kelly,  16  Wall.  610,  622;  Felch  v.  Bug- 
bee,  48  Me.  9;  Wallace  v.  Patterson,  2  Harr.  &  McH.  463 ;  Blake  v.  Williams,  6  Pick. 
286;  Taylor  v.  Columbian  Ins.  Co.,  14  Allen,  354;  Saunders  v.  Williams,  5  N.  H.  213; 
Stillings  v.  Haley,  68  N.  H.  541 ;  Kelly  v.  Crapo,  45  N.  Y.  86 ;  M'Neil  v.  Colquhoun, 

2  Hayw.  24 ;  Milne  v.  Moreton,  6  Binn.  353. 

In  Paine  v.  Lester,  44  Conn.  196,  a  citizen  of  a  third  State  was  allowed  the  same 
rights  as  a  citizen  of  Connecticut,  where  the  property  in  question  was  situated. 

How  far  any  discrimination  between  citizens  of  different  States  is  constitutional 
has  been  questioned  in  South  Boston  Iron  Co.  v.  Boston  Locomotive  Works,  51  Me. 
585  (conf.  Chafee  v.  Fourth  Nat.  Bank,  71  Me.  514,  526) ;  Kidder  v.  Tufts,  48  N.  H.  121, 
125 ;  Sturtevant  v.  Armsby  Co.,  66  N.  H.  557 ;  Ward  v.  Morrison,  25  Vt.  593,  598. 
The  United  States  Supreme  Court  has  not  seemed  disposed  to  take  the  point. 
Reynolds  v.  Adden,  136  U.  S.  348 ;  Baruett  v.  Kinney,  147  U.  S.  476.  But  see  Blake  v. 
McClung,  172  U.  S.  239,  176  U.  S.  59;  Belfast  Bank  v.  Stowe,  92  Fed.  100  (C.  C.  A.). 


SECT.  IL]  FKANK  V.  BOBBITT.  361 

The  proceedings  in  Scotland  for  the  sequestration  of  the  estates  of 
Girdwood  &  Forrest  were  founded  on  the  petition  of  ,the  members  of 
the  firm,  and  are  operative  against  all  its  creditors  residing  there.  We 
are  now  asked  by  creditors  having  their  domicile  in  another  part  of  the 
British  dominions  to  disregard  these  proceedings  and  allow  them  a 
preference  upon  the  firm  effects  in  Pennsylvania.  This  we  cannot  do 
without  an  abandonment  of  our  well-settled  policy  in  such  cases,  —  a 
policy  founded  in  comity  and  promotive  of  justice.1 


FRANK  v.   BOBBITT. 

SUPREME  JUDICIAL  COURT  OP  MASSACHUSETTS,  SEPTEMBER  22- 
DECEMBER  14,  1891. 

[Reported  in  155  Massachusetts,  112.] 

Two  trustee  processes.  Writs  dated  November  21,  1889.  The 
cases  were  submitted  to  the  Superior  Court,*  and,  after  judgment  for 
certain  claimants,  to  this  court,  on  appeal,  on  agreed  facts,  in  substance 
as  follows. 

The  plaintiffs  in  each  case  were  residents  of  the  State  of  Maryland, 
and  sought  to  recover  in  an  action  of  contract  for  goods  sold  in  that 
State  to  the  defendants,  and  brought  their  actions  in  this  Common- 
wealth in  order  to  attach  funds  of  the  defendants  in  the  possession  of 
the  Springfield  Fire  and  Marine  Insurance  Compan}',  a  corporation 
organized  under  the  laws  of  this  Commonwealth,  and  having  its  usual 
place  of  business  in  Springfield  in  this  State.  The  defendants,  who  were 
retail  merchants  doing  business  and  residing  at  Spring  Hope,  Nash 
County,  North  Carolina,  appeared,  and  judgments  were  rendered  against 
them  for  amounts  exceeding  the  sum  held  by  the  trustee.  The  trustee 
filed  answers  disclosing  funds  in  its  possession  to  the  amount  of  $900 
due  the  defendants  at  the  time  of  the  service  of  the  plaintiffs'  writs 
upon  it,  under  a  policy  of  insurance,  as  hereinafter  set  forth. 

One  Threewitts  and  one  Johnson,  both  residents  of  North  Carolina, 
appeared  in  each  action  as  claimants  of  the  funds  in  the  possession  of 
the  trustee,  under  an  assignment  made  to  them  by  the  defendants  on 
November  13,  1889.  This  assignment,  which  was  valid  in  the  State  of 
North  Carolina,  set  forth  that  "  Whereas,  W.  V.  Bobbitt,  of  the  firm 
of  Bobbitt  and  Spive}7,  is  justly  indebted  to  his  wife,  Mary  E.  Bobbitt, 
in  the  sum  of  $2,500,  evidenced  by  a  bond  dated  first  day  of  January, 
1887,  bearing  interest  at  rate  of  eight  per  centum  from  date,  which 
amount  was  used  by  the  said  Bobbitt  as  capital  for  the  commencement 
of  a  general  merchandise  business  by  the  said  W.  V.  Bobbitt  and 
Joseph  J.  Spivey,  under  the  firm  name  of  Bobbitt  and  Spivey,  in  the 

1  A  HI  nail  part  of  the  opinion  is  omitted. 


362  FRANK   V.   BOBBITT.  [CHAP.  V. 

town  of  Spring  Hope,  Nash  County,  North  Carolina,"  and  whereas  that 
firm  was  also  indebted  to  certain  other  residents  named  of  North  Caro- 
lina, in  certain  specific  sums,  and  whereas  the  firm  was  indebted  to 
various  other  persons  for  merchandise,  whose  names  and  the  amount  of 
whose  claims  were  unknown,  therefore  the  plaintiffs,  in  consideration 
of  the  premises  and  of  the  sum  of  one  dollar,  had  conveyed  unto  Three- 
witts  and  Johnson  a  certain  lot  of  land  in  the  town  of  Spring  Hope, 
"•  and  all  the  stock  of  goods,  wares,  and  merchandise  now  in  the  pos- 
session of  said  Bobbitt  and  Spivey  in  the  said  town  of  Spring  Hope ; 
also  certain  policies  of  insurance  upon  the  said  stock  of  goods,  wares, 
and  merchandise,  viz.  Policy  No.  221  in  the  Springfield  Fire  and  Marine 
Insurance  Company  of  Springfield,  Mass.  .  .  .  Also  the  entire  stock 
of  whiskey,  brand}',  liquors,  etc.,  now  owned  by  the  said  Bobbitt  and 
Spivey  in  the  town  of  Spring  Hope,  aforesaid.  Also  all  the  accounts, 
notes,  mortgages,  or  other  choses  in  action,  and  all  other  personal  prop- 
erty whatsoever,  now  owned  by  the  said  Bobbitt  and  Spivey." 

The  assignment  further  provided  that  Threewitts  and  Johnson  should 
hold  the  property  conveyed  to  them  in  trust,  and,  after  allotting  to 
Spivev  an  exemption  of  five  hundred  dollars,  should  sell  the  same,  and, 
after  payment  of  their  commissions  and  the  expense  of  executing  the 
trust,  pa}'  the  debts  due  to  the  creditors  named  in  the  assignment,  in- 
cluding the  wife  of  Bobbitt,  "  pro  rata,  and  in  full,  if  there  be  a  suffi- 
ciency," and  with  the  residue,  if  any,  should  pay  the  remaining  debts 
owed  by  the  firm,  and  hand  over  the  remainder,  if  any,  to  the  members 
thereof.  At  the  time  the  assignment  was  made,  the  personal  property 
therein  mentioned  and  the  insurance  policy  issued  by  the  trustee  to  the 
defendants  were  delivered  to  the  assignees,  but  prior  thereto  a  portion 
of  the  stock  of  goods  covered  by  the  policy  had  been  destroyed  by 
fire,  and  the  loss  thereon  was  adjusted,  so  far  as  the  trustee  is  con- 
cerned, at  $900 ;  but  there  was  other  insurance.  The  plaintiffs  de- 
nied the  validity  of  said  assignment,  as  against  their  attachments  in 
this  Commonwealth,  and  claimed  to  hold  said  funds  by  virtue  thereof. 

If  the  claimants  were  entitled  to  the  funds,  judgment  was  to  be  en- 
tered for  them,  and  the  trustee  discharged  ;  otherwise,  judgment  was 
to  be  entered  for  the  plaintiffs,  and  the  trustee  charged  on  the  answers. 
W.  B.  Stone,  for  the  plaintiffs. 
E.  H.  Lathrop,  for  the  claimants. 
(7.  A.  .Birnie,  for  the  trustee. 

MORTON,  J.  The  assignment  was  made  on  November  13,  1889,  and, 
as  the  agreed  facts  state,  is  valid  in  the  State  of  North  Carolina,  where 
it  was  made  and  recorded,  and  where  the  assignors  and  assignees  live. 
At  the  time  the  assignment  was  made,  the  personal  property  mentioned 
in  it,  and  the  insurance  policy  under  which  the  amount  is  due  that  is 
the  subject  of  this  suit,  were  delivered  to  the  assignees.  The  loss  had 
occurred  before  the  delivery  of  the  policy  to  them.  The  assignment 
conveys,  among  other  things,  this  and  other  policies,  and  "  also  all  the 
accounts,  notes,  mortgages,  or  other  choses  in  action,  and  all  other 


SECT.  II.]  FRANK   V.    BOBBITT.  363 

personal  propert}r,"  belonging  to  the  assignors.  The  plaintiffs  live  in 
Maryland,  and  have  not  become  parties  to  the  assignment.  It  does 
not  appear  that  any  other  creditors  have  done  so.  The  writ  upon 
which  the  plaintiffs  attached  the  funds  in  the  hands  of  the  insurance 
company  bears  date  November  21,  1889,  and  the  attachment  was  made 
the  day  following,  and  was  consequently  some  days  after  the  assign- 
ment had  been  made.  There  do  not  seem  to  be  any  Massachusetts 
creditors,  nor  any  parties  resident  here,  whose  interests  are  affected  by 
the  assignment  Therefore,  the  question  that  arises  is  wholly  between 
non-residents  living  in  two  different  States. 

The  plaintiffs  insist  that  the  assignment  should  be  declared  void,  on 
account  of  the  preferences  which  it  creates,  and  because  it  does  not 
appear  to  have  been  assented  to  by  any  creditors  of  the  assignees,  and 
is  without  consideration  ;  and  they  claim  the  same  right  to  avoid  it  on 
these  grounds  that  an  attaching  creditor  who  was  a  citizen  of  this  State 
would  have.  It  is  to  be  observed  that  the  assignment  is  a  voluntary 
one,  and  not  a  statutory  one,  as  in  Payne  v.  Lester,  44  Conn.  196,  a 
case  much  relied  on  by  the  plaintiffs,  but  which  was  disposed  of  on  the 
ground  that  a  statutory  assignment  could  have  no  strictly  legal  effect 
outside  the  State  where  it  arose.  As  sustaining  that  proposition,  see 
Blake  v.  Williams,  6  Pick.  286  ;  May  v.  Wannemacher,  111  Mass.  202  ; 
Willitts  v.  Waite,  25  N.  Y.  577,  587,  and  cases  cited  ;  Kelly  v.  Crapo, 
45  N.  Y.  86  ;  Harrison  v.  Sterry,  5  Cranch,  289,  298  ;  Ogden  v.  Saun- 
ders,  12  Wheat.  213 ;  Story,  Conflict  of  Laws  (7th  ed.),  §  414.  It  is 
to  be  noticed  further,  that  the  case  does  not  come  within  the  class  of 
cases  in  which  an  assignment  open  t6  the  objections  urged  against  this 
can  be  avoided  by  all  attaching  creditors  resident  here.  The  attaching 
creditor  in  this  suit  lives  in  Maryland.  It  is  to  be  said  also,  that  at 
common  law  in  this  State  an  assignment  for  the  benefit  of  creditors 
which  creates  preferences  is  not  void  for  that  reason,  and  that  there  is 
no  statute  here  which  renders  invalid  such  an  assignment  when  made 
by  parties  living  in  another  State  and  affecting  property  here.  Train 
v.  Kendall,  137  Mass.  366. 

The  general  rule  is,  that  a  personal  contract  valid  by  the  law  of  the 
place  where  it  is  made  will  be  regarded  as  valid  elsewhere,  and  will  be 
enforced  in  foreign  jurisdictions.  It  is  not  necessary  to  inquire  whether 
this  rule  rests  on  the  comity  which  prevails  between  different  States  and 
countries,  or  is  a  recognition  of  the  general  right  which  every  one  has 
to  dispose  of  his  property  or  to  contract  concerning  it  as  he  chooses. 
Under  it,  this  court  has  frequently  held  that  a  voluntary  assignment 
made  by  a  debtor  living  in  another  State  for  the  benefit  of  his  creditors 
would  be  regarded  as  valid  here.  In  Means  v.  Hapgood,  19  Pick.  105, 
it  was  held  that  such  an  assignment  made  b}'  the  debtor,  who  lived  iu 
Maine,  operated  to  transfer  a  claim  which  he  had  against  a  party  living 
in  this  State.  The  only  qualification  annexed  to  such  assignments  has 
been,  that  this  court  would  not  sustain  them  if  to  do  so  would  be  preju- 
dicial to  the  interests  of  our  own  citizens  or  opposed  to  public  policy. 


364  FRANK    V.   BOBBITT.  [CHAP.  V. 

Whipple  v.  Thayer,  16  Pick.  25 ;  Daniels  v.  Willard,  16  Pick.  36  ;  Bur- 
lock  v.  Taylor,  16  Pick.  335  ;  Newman  v.  Bagley,  16  Pick.  570  ;  Means 
v.  Hapgood,  19  Pick.  105;  Wales  v.  Alden,  22  Pick.  245;  Cragin  v. 
Lamkin,  7  Allen,  395;  May  v.  Wannemacher,  111  Mass.  202;  Pierce 
v.  O'Brien,  129  Mass.  314 ;  Train  v.  Kendall,  137  Mass.  366. 

Nothing  prejudicial  to  the  interests  of  our  own  citizens  will  result  from 
upholding  this  assignment.  And  we  discover  nothing  which  should 
lead  us  to  hold  it  invalid  as  between  parties  living  in  other  States  in 
the  fact  that  the  wife  of  one  of  the  assignors  may  be  entitled  to  receive 
under  it  in  North  Carolina  from  the  assignees  money  which  she  lent  to 
her  husband,  and  which  constituted  the  capital  of  the  firm  of  which  he 
was  a  member,  and  by  which  the  assignment  in  question  was  made. 
See  Milliken  v.  Pratt,  125  Mass.  374. 

As  to  the  claim  of  the  plaintiffs  that  they  should  stand  as  well  as  if 
they  were  citizens  of  this  State,  it  may  be  said,  in  the  first  place,  that 
the  qualification  attached  to  foreign  assignments  is  in  favor  of  our  own 
citizens  as  such,  and  in  the  next  place,  that  the  assignment  being  valid 
by  the  law  of  the  place  where  it  was  made,  and  not  adverse  to  the  in- 
terests of  our  citizens  nor  opposed  to  public  policy,  no  cause  appears 
for  pronouncing  it  invalid. 

In  regard  to  the  case  of  Ward  v.  Morrison,  25  Vt.  593,  it  is  only 
necessary  to  observe  that  it  appeared  that  the  law  of  Vermont  required 
notice  to  the  debtor  of  the  assignment  of  a  chose  in  action  in  order  to 
complete  the  transfer.  It  did  not  appear  whether  such  notice  was  or 
was  not  required  by  the  law  of  New  York,  where  the  assignment  was 
made,  and  it  was  accordingly  held  that  it  would  be  assumed  that  the 
law  of  N'-w  York  was  the  same  as  that  of  Vermont,  and  the  assignment 
was  consequently  declared  invalid  as  against  a  subsequent  claimant. 
It  is  clear  that  in  this  State  no  such  notice  is  required.  Wakefield  v. 
Martin,  3  .Mass.  558;  Norton  v.  Piscataqua  Ins.  Co.  Ill  Mass.  532, 
535.  See  also  Murphy  v.  Collins,  121  Mass.  6. 

According  to  the  agreed  statement  of  facts,  the  entry  must  be, 

Judgment  for  claimants,  and  trustee  discharged.1 

1  Similarly  general  assignments  valid  where  made  have  been  held  effectual  to  pass 
title  to  property  in  another  jurisdiction  as  against  creditors  resident  in  a  third  juris- 
diction. Schuler  t>.  Israel,  27  Fed.  Rep.  851;  Schroder  v.  Tompkins,  58  Fed.  Rep. 
672;  May  --.  First  Nat.  Bank,  122  111.  551  (land)  ;  Woodward  v.  Brooks,  128  111.  222 
(srmble) ;  Juillard  v.  May,  130  111.  87 ;  J.  Walter  Thompson  Co.  v.  Whitened,  185  111. 
454;  Cunningham  v.  Butler,  142  Mass.  47;  Sanderson  v.  Bradford,  10  N.  H.  260; 
Moore  v.  Bonnell,  31  N.  J.  L.  90;  Bentley  v.  Whittemore,  19  N.  J.  Eq.  462;  Green  v. 
Wallis  Iron  Works,  49  N.  J.  Eq.  54  ;  Weider  v.  Maddox,  66  Tex.  372  ;  Cook  v.  Van 
Horn,  81  Wis  291. 

The  case  is,  of  course,  stronger  where  the  creditor  is  resident  within  the  jurisdiction 
where  the  assignment  was  made.  Woodward  v.  Brooks,  128  111.  222;  Roberts  v.  Nor- 
cross,  69  N.  H  533 ;  Wing  v.  Bradner,  162  Pa.  72. 

In  a  majority  of  States  it  is  also  held  that  an  assignment  is  operative  even  against 
citizens  of  the  State  where  the  property  is  situated.  Caskie  v.  Webster,  2  Wall  Jr. 
131 ;  First  Nat.  Bank  v.  Walker,  61  Conn.  154;  Walters  v.  Walker,  9  Fla.  86;  King 
v.  Glass,  73  la.  205 ;  Coflin  v.  Kelling,  83  Ky.  649 ;  B.  &  0.  R.  R.  v,  Glenn,  28  Md. 


SECT.  II.  J  EARTH  V.   BACKUS.  365 


EARTH  v.  BACKUS. 
YORK  COURT  OF  APPEALS,  OCTOBER  IT-NOVEMBER  28,  1893. 

[Reported  in  140  New  York,  230.] 

APPEAL  from  judgment  of  the  General  Term  of  the  Supreme  Court 
in  the  third  judicial  department,  entered  upon  an  order  made  February 
15,  1893,  which  affirmed  a  judgment  in  favor  of  plaintiff  entered  upon 
a  decision  of  the  court  on  trial  at  Special  Term. 

This  action  was  brought  originally  by  plaintiff  as  general  assignee 
for  the  benefit  of  creditors  of  the  Wilkin  Manufacturing  Company, 
a  corporation- of  Wisconsin,  against  the  Canton  Lumber  Company,  a 
domestic  corporation,  to  recover  an  amount  remaining  unpaid  on  a  bill 
for  machinery  furnished  by  said  Wisconsin  company  to  said  lumber 
company.  It  appeared  that  after  the  execution  of  the  assignment  and 
before  the  bringing  of  this  action,  the  sheriff  of  St.  Lawrence  County 
attached  said  debt  under  warrants  of  attachment  in  four  several  actions. 
Afterwards,  this  action  having  been  brought,  the  amount  of  the  debt 
was  paid  into  court  by  said  lumber  company,  and  said  sheriff  and  the 
attaching  creditors,  who  were  New  York  corporations,  were  substituted 
as  defendants. 

Further  facts  are  stated  in  the  opinion. 

Nelson  L.  Robinson,  for  appellant. 

Thomas  Spratt  and  Ledyard  P.  Jlale,  for  respondent. 

ANDREWS,  C.  J.  The,  general  rule  that  the  validity  of  a  transfer  ot 
personal  property  is  governed  by  the  law  of  the  domicile  of  the  owner, 

287  ;  May  v.  Wannemacher,  111  Mass.  202;  Train  v.  Kendall,  137  Mass.  366;  Butler 
v.  Wendell,  57  Mich.  62,  67;  Covey  v.  Cutler,  55  Minn.  18  (semble);  Hawkins  v.  Ire- 
laud,  64  Minn.  339,  345  (semble) ;  Askew  v.  La  Cygne  Bank,  83  Mo.  366 ;  Sortwell  v. 
Jewett,  9  Ohio  181  (land) ;  Fuller  v.  Steiglitz,  27  Ohio  St.  355  ;  Johnson  v.  Sharp,  31 
Ohio  St.  611 ;  Ex  parte  Dickinson,  29  S.  C.  453,  460;  Weider  v.  Maddox,  67  Tex.  372 
(semble) ;  Hanford  v.  Paine,  32  Vt.  442,  455, 458  (semble) ;  Cook  v.  Van  Horn,  81  Wis. 
291 ;  see  also  Phillips,  etc.  Co.  v.  Whitney.  102  Fed.  Rep.  838.  But  see  contra,  Halsted 
v.  Straus,  32  Fed.  Rep.  279  (semble);  Heyer  v.  Alexander,  108  111.  385;  Henderson  v. 
Schaas,  35  111.  App.  156;  Townsend  v.  Coxe,  151  111.  62  ;  Smith  v.  Lamson,  184  111. 
71 ;  Whithed  v.  J.  Walter  Thompson  Co.,  86  111.  App.  76;  Fox  v.  Adams,  5  Me.  245; 
Hughes  v.  Lamhertville  Electric  Co.,  53  N.  J.  Eq.  435;  Happy  r.  Prickett,  64  Pac. 
Rep.  528  (Wash.). 

An  assignment  in  violation  of  the  law  or  policy  of  the  jurisdiction  where  the  prop- 
erty is  situated,  it  is  everywhere  agreed,  will  not  be  enforced  there.  Barnett  v.  Kin- 
ney,  2  Idaho,  706 ;  Townsend  v.  Coxe,  151  111.  62;  Barth  v.  Iroquois  Furnace  Co.,  63 
111.  App.  323  ;  Whithed  v.  J.  Walter  Thompson  Co.,  86  111.  App.  76 ;  Moore  v.  Church, 
70  la.  208 ;  Franzen  v.  Hutchinsou,  94  la.  95 ;  Ex  parte  Dickinson,  29  S.  C.  453 ; 
Ayres  v.  Desportes,  56  S.  C.  544.  Compare,  however,  the  following  cases  where  a 
preferential  assignment  was  upheld,  though  preferences  were  not  allowed  by  the  lex 
fori.  Atherton  v.  Ives,  20  Fed  Rep.  894  ;  Train  v.  Kendall,  137  Mass.  366 ;  Frank 
/•.  Bobbitt,  155  Mass.  112;  Moore  --.  Bounell,  31  N.  J.  L.  90;  Fuller  v.  Steiglitz,  27 
Ohio  St.  355. 


366  BARTH   V.   BACKUS.  [CHAP.  V. 

is  in  most  jurisdictions  held  to  apply  to  a  transfer  by  voluntary  as- 
signment by  a  debtor  of  all  his  property  for  the  benefit  of  creditors,  as 
well  as  to  a  specific  transfer  by  way  of  ordinary  sale  or  contract ;  and 
the  title  of  such  assignee,  valid  by  the  law  of  the  domicile,  will  prevail 
against  the  lien  of  an  attachment  issued  and  levied  in  another  State  or 
country  subsequent  to  the  assignment,  in  favor  of  a  creditor  there, 
whether  a  citizen  or  non-resident,  upon  a  debt  or  chattel  belonging  to 
the  assignor,  embraced  in  the  assignment,  provided  the  recognition  of 
the  title  under  the  assignment  would  not  contravene  the  statutory  law 
of  the  State,  or  be  repugnant  to  its  public  policy.  The  decisions  are 
not  uniform,  but  this  is  the  general  rule,  supported  by  the  preponderat- 
ing weight  of  authority,  and  is  the  settled  law  of  this  State.  Ocker- 
man  v.  Cross,  54  N.  Y.  29;  Bishop  on  Insolvents,  §§  241,  265,  and 
cases  cited.  But  this  general  rule  is  subject  to  a  qualification  estab- 
lished in  the  jurisprudence  of  the  American  States,  that  a  title  to 
personal  property  acquired  in  invitum  under  foreign  insolvent  or  bank- 
rupt laws,  good  according  to  the  law  of  the  jurisdiction  where  the 
proceedings  were  taken,  will  not  be  recognized  in  another  jurisdiction 
where  it  comes  in  conflict  with  the  rights  of  creditors  pursuing  their 
remedy  there  against  the  property  of  the  debtor,  although  the  proceed- 
ings were  instituted  subsequent  to  and  with  notice  of  the  transfer  in 
insolvency  or  bankruptcy.  Holmes  v.  Remsen,  20  Johns.  229  ;  Kelly 
v.  Crapo,  45  N.  Y.  87  ;  In  re  Waite,  99  N.  Y.  433  ;  2  Kent  Cora.  406, 
407.  This  exception  proceeds  upon  the  view  that  to  give  effect  to  such 
a  transfer  arising  by  operation  of  law,  and  not  based  upon  the  volun- 
tary exercise  by  the  owner  of  the./ws  disponendi,  would  be  to  give  the 
foreign  law  an  extraterritorial  operation,  which  the  rule  of  comity 
ought  not  to  permit  to  the  prejudice  of  suitors  in  another  jurisdiction. 
The  cases  in  this  State  since  the  case  of  Holmes  v.  Remsen,  4  Jo.  Ch. 
460,  in  which  the  chancellor  sought  to  maintain  the  English  doctrine 
on  the  subject,  have  uniformly  sustained  the  rights  of  domestic  attach- 
ing creditors  against  a  title  under  a  prior  statutory  assignment  in 
another  State  or  country,  the  several  States  of  the  Union  being  treated 
for  this  purpose  as  foreign  to  each  other.  Willitts  v.  Waite,  25  N.  Y. 
577  ;  Johnson  v.  Hunt,  23  Wend.  87  ;  Kelly  v.  Crapo,  supra. 

The  general  question  in  this  case  involves  the  point  whether  the  as- 
signment made  by  the  Wilkin  Manufacturing  Company,  under  the 
statute  of  Wisconsin,  is  to  be  treated  as  a  voluntary  assignment,  not 
in  conflict  with  our  laws  or  polic}7,  or  whether,  in  view  of  the  compul- 
sory clauses  of  that  statute,  it  is  to  be  regarded  as  in  the  nature  of  a 
bankrupt  law,  and  ineffectual  to  transfer  title  to  the  property  of  the 
insolvent  in  our  jurisdiction  as  against  attaching  creditors.  In  con- 
sidering whether  the  title  of  the  assignee  in  Wisconsin  is  paramount  to 
the  claims  of  creditors  here,  who,  subsequent  to  the  assignment,  pro- 
cured attachments  against  the  debt  owing  to  the  Wilkin  Manufacturing 
Company  by  the  Canton  Lumber  Compan3r,  a  reference  to  the  Wiscon- 
sin statute  under  which  the  assignment  was  made,  becomes  important, 


SECT.  II.]  EARTH   V.   BACKUS.  367 

The  original  statute  upon  the  subject  of  voluntary  assignments  by  fail- 
ing debtors,  was  similar  to  the  statute  in  this  State  upon  the  same 
subject.  It  was  a  statute  prescribing  the  conditions  of  such  assign- 
ments and  regulating  the  administration  of  the  trust  for  the  protection 
of  creditors.  In  1889,  radical  changes  were  made  in  the  statutor}' 
system  of  Wisconsin,  and  the  prior  statute  was  amended.  The  amend- 
ments, among  other  things,  provided  that  the  assignor  in  a  voluntary 
assignment  for  the  benefit  of  his  creditors,  made  under,  or  in  pur- 
suance of  the  laws  of  the  State,  "may  be  discharged  from  his  debts  as 
a  part  of  the  proceedings  under  such  assignment,  upon  compliance 
with  the  provisions  of  this  act."  It  further  declared  that  every  cred- 
itor of  the  insolvent  debtor  residing  within  or  without  the  State  who 
should  accept  a  dividend  out  of  the  assigned  estate,  or  in  any  way,  by 
proving  his  claim  or  otherwise,  participate  in  the  proceedings  under 
the  assignment,  shall  be  "deemed  to  have  appeared  in  the  matter  of 
such  assignment  and  the  application  for  a  discharge,  and  should  be 
bound  by  any  order  or  discharge  granted  by  the  court,"  subject  to  the 
right  of  appeal.  Under  the  statute,  a  creditor,  by  accepting  a  divi- 
dend, thereby  consented  to  a  discharge  of  the  debtor  from  the  portion 
of  the  debt  remaining  over  and  above  his  share  of  the  assets,  and 
unless  a  creditor  comes  in  under  the  assignment,  he  is  debarred  from 
receiving  anything  out  of  the  assigned  property,  unless  indeed  a  sur- 
plus should  remain  after  payment  of  the  participating  creditors  in 
full,  although  it  seems  the  debt  would  remain  as  a  claim  against  the 
insolvent. 

The  power  to  discharge  a  contract  without  paj'ment  or  satisfaction 
and  without  the  consent  of  the  parties,  is  a  power  which  pertains  to 
the  sovereign  alone.  The  statute  of  Wisconsin  does  not  assume  to 
discharge  the  debts  owing  by  the  insolvent  assignor  absolute!}'.  But, 
as  has  been  said,  it  deprives  creditors  who  do  not  come  in  under 
the  assignment,  of  all  share  in  the  assigned  estate,  unless  in  the ' 
improbable  contingency  of  a  surplus.  This  coercive  feature  of  the 
scheme,  if  contained  in  a  voluntary  general  assignment  for  the  benefit 
of  creditors,  would  render  the  assignment  void.  Grover  v.  Wakeman, 
11  Wend.  189.  The  statute  of  Wisconsin,  however,  incorporates  this 
feature  and  the  law  is  recognized  by  the  courts  of  Wisconsin  as  an 
insolvent  law.  Holton  v.  Burton,  78  Wis.  321  ;  Hempsted  v.  Ins.  Co., 
Id.  375,  This  court  had  occasion  in  the  case  of  Boese  v.  King,  78 
N.  Y.  471,  to  consider  a  similar  provision  in  a  statute  of  New  Jersey, 
regulating  voluntary  assignments  for  the  benefit  of  creditors  in  that 
State,  and  it  was  assumed  that  the  provision  in  that  act  was  in  the 
nature  of  a  bankrupt  law.  Effect  cannot  be  given  here  to  this  coercive 
feature  in  the  Wisconsin  law,  except  \>y  giving  extraterritorial  effect 
to  the  law  of  that  State.  The  assignor  had  no  power  to  make  such  a 
condition,  and  if  it  is  legal  it  is  by  force  of  the  statute  alone.  This 
feature  is  one  of  the  distinguishing  tests  of  an  insolvent  or  bankrupt 
law.  The  assignment  was  voluntary  in  the  sense  that  the  Wilkin 


368  EARTH   V.   BACKUS.  [CHAP.  V. 

Manufacturing  Company  were  not  coerced  into  executing  it,  and  the 
title  to  the  property  was  vested  in  the  assignee  by  its  own  act.  But, 
whether  it  is  to  be  treated  as  voluntary  in  another  jurisdiction  when  the 
claims  of  creditors  there  are  in  question,  is  the  point.  The  assignment 
purports  to  have  been  made  under  and  in  pursuance  of  the  law  of  Wis- 
consin. The  assignor,  by  proceeding  under  that  law,  presumably 
designed  to  avail  itself  of  the  provision  for  a  discharge.  This  could 
only  be  accomplished  by  force  of  the  law.  The  right  of  an  insol- 
vent or  bankrupt  to  initiate  voluntary  proceedings  in  bankruptcy  is  a 
common  feature  in  bankrupt  laws,  but  that  fact  does  not  make  the 
assignment  voluntarj',  so  as  to  give  extraterritorial  operation  to  the 
proceedings.  This  point  was  adverted  to  in  the  case  of  Upton  v. 
Hubbard,  28  Conn.  274,  where  the  court  said  :  "  In  our  view  there  is 
essentially  no  difference  whether,  in  consequence  of  an  act  of  bank- 
ruptcy, as  in  England,  the  bankrupt's  estate  is  forced  from  him,  or  he 
himself  sets  the  law  in  motion  by  a  conveyance  in  bankruptcy  in  the 
first  instance.  Under  the  Wisconsin  statute  the  transfer  is  voluntary, 
but  the  law  steps  in  and  regulates  the  distribution  of  the  assigned 
estate  in  accordance  with  conditions  which  the  sovereign  alone  can 
prescribe.  It  would,  we  think,  be  disregarding  the  substance  to  hold 
that  the  voluntaiy  feature  of  the  law  distinguishes  it  from  the  class  of 
bankrupt  or  insolvent  statutes  which,  by  general  consent  in  this  coun- 
try, are  held  to  be  ineffectual  to  transfer  the  title  of  the  insolvent  to 
property  in  another  State,  as  against  attaching  creditors  there. 

It  is  insisted,  however,  in  behalf  of  the  plaintiff,  that,  assuming  that 
the  title  of  the  assignee  would  be  subordinate  to  the  lien  of  attach- 
ments, issued  here  at  the  suit  of  resident  creditors,  this  priority  cannot 
be  claimed  in  behalf  of  Wisconsin  creditors  who,  knowing  of  the  as- 
signment, seek  to  gain  a  preference  under  our  attachment  laws,  and 
that  the  banks  to  whom  the  claims  were  assigned  after  maturity,  and 
who  took  with  notice  of  the  assignment,  stand  in  no  better  position 
than  the  original  creditors.  In  some  of  the  States,  which  refuse  to  rec- 
ognize the  validity  of  the  title  of  a  foreign  assignee,  even  in  case  of 
voluntaiy  assignment,  where  it  comes  in  conflict  with  the  claims  of 
domestic  creditors,  a  distinction  is  made,  and  it  is  held  that  where  the 
domicile  of  the  foreign  assignee  and  the  creditor  is  the  same,  the  latter 
will  be  bound  by  the  title  of  the  former,  good  by  the  law  of  the  com- 
mon domicile.  May  v.  Wannemacher,  111  Mass.  202;  Sanderson  v. 
Bradford,  10  N.  H.  260 ;  Moore  v.  Bonnell,  2  Vroom,  90.  The  prin- 
ciple of  comit\r  in  these  States  is  held  to  apply  so  as  to  subject  non- 
residents to  the  operation  of  the  foreign  law,  but  not  so  as  to  prevent 
domestic  creditors  from  pursuing  their  remedy  in  defiance  of  the  foreign 
assignment.  Faulkner  v.  Hyman,  142  Mass.  53. 

The  question  is  not  an  open  one  in  this  State.  We  have  refused  to 
adopt  the  distinction  made  in  some  of  the  States,  and  have  placed  the 
right  of  a  creditor  coming  here  from  the  State  of  the  common  domicile 
upon  the  same  footing  as  that  of  a  citizen  or  resident  creditor,  and 


SECT.  II.]  EARTH   V.   BACKUS.  369 

have  sustained  the  lien  of  an  attachment  issued  here  at  the  instance  of 
a  foreign  creditor  after  proceedings  in  insolvency  had  been  instituted 
in  the  State  of  the  common  domicile  of  the  insolvent  and  creditor. 
Hibernia  Natl.  Bank  v.  Lacombe,  84  N.  Y.  367.  There  the  debtor 
and  attaching  creditor  were  Louisiana  corporations.  The  attachment 
was  issued  after  the  debtor  bank  had  been  placed  in  liquidation  under 
the  laws  of  that  State  and  commissioners  had  been  appointed  to  take 
possession  of  and  administer  its  assets.  DANFORTH,  J.,  after  stating 
the  general  rule  that  the  law  of  Louisiana  could  have  no  operation  here, 
referring  to  the  point  now  under  consideration,  said :  "  The  plaintiff, 
as  we  have  seen,  although  a  foreign  creditor,  is  rightfully  in  our  courts 
pursuing  a  reined}'  given  by  our  statutes.  It  may  enforce  that  remedy 
to  the  same  extent,  and  in  the  same  manner,  and  with  the  same  prior- 
ity, as  a  citizen.  Once  properly  in  court  and  accepted  as  a  suitor, 
neither  the  law  nor  court  administering  the  law  will  admit  any  distinc- 
tion between  the  citizen  of  its  own  State  and  that  of  another."  How 
far  our  courts  will  enforce  the  title  of  a  foreign  assignee  in  bankruptcy 
as  between  the  assignee  and  the  bankrupt  or  his  creditors,  where  all 
the  parties  have  a  common  domicile  abroad,  was  much  discussed  in  the 
case  of  Abraham  v.  Plestoro,  3  Wend.  548,  and  that  case,  with  others, 
were  reviewed  in  the  case  of  In  re  Waite,  supra.  The  authority  of 
Hibernia  Bank  v.  Lacombe  upon  the  point  now  in  question  was  ex- 
pressly recognized  and  approved  in  Warner  v.  Jaffray,  96  N.  Y.  248, 
and  it  must  be  regarded  as  establishing  the  law  of  the  State  on  the  sub- 
ject. In  Warner  v.  Jaffray  the  court  refused  to  interfere  with  liens 
acquired  by  citizens  of  this  State  upon  personal  propert}*  in  another 
State  under  the  laws  of  that  State,  belonging  to  an  insolvent  resident 
here,  under  proceedings  commenced  after  a  voluntary  assignment  for 
the  benefit  of  creditors,  valid  by  the  laws  of  this  State,  had  been  made 
and  delivered.  It  was  in  substance  held  that  creditors  of  the  assignor, 
citizens  of  this  State,  were  not,  because  of  such  citizenship,  precluded 
from  taking  proceedings  in  another  State  hostile  to  the  assignment, 
for  the  purpose  of  acquiring  priority  in  respect  of  personal  property 
situated  there  embraced  in  the  assignment.  See,  also,  Johnson  v. 
Hunt,  supra.  The  courts  of  this  State  accord  to  our  citizens  the  same 
liberty  to  proceed  in  another  jurisdiction  in  hostility  to  assignments 
executed  here  which  they  accord  to  citizens  of  other  States  coming  here 
and  instituting  proceedings  in  hostility  to  transfers  in  insolvenc}-,  valid 
by  the  laws  of  their  domicile.  The  rule  in  New  York  on  the  question 
is  also  the  rule  in  other  States.  McClure  v.  Campbell,  71  Wis.  350; 
Rhawn  v.  Pearce,  110  111.  350;  Boston  Iron  Works  v.  Boston  Loco- 
motive Works,  51  Me.  585 ;  Upton  v.  Hubbard,  supra.  It  follows, 
therefore,  that  the  attachments  in  question  created  valid  liens  on  the 
debt  attached  in  priority  to  the  title  under  the  assignment,  assuming 
the  claim  of  the  plaintiff  that  the  banks  stood  in  no  better  position 
than  the  Wisconsin  creditors. 

The  point  that  the  provisions  in  the  Wisconsin  statute  providing  for 


370  WITTERS   V.   GLOBE   SAVINGS   BANK   OF   CHICAGO.        [CHAP.  V. 

a  discharge  of  insolvent  debtors  appty  to  natural  persons  only,  and 
not  to  corporations,  is  opposed  to  the  statutory  construction  of  the  word 
"  person,"  as  defined  in  the  Revised  Statutes  of  that  State,  and  there 
is  nothing  in  the  charter  of  the  corporation,  so  far  as  appears,  or  in 
the  statutes  of  Wisconsin,  which  takes  from  this  corporation  the  gen- 
eral powers  which,  in  the  absence  of  any  statutory  or  charter  restric- 
tion, belong  to  corporations  to  make  an  assignment  in  insolvency. 
DeRuyter  v.  St.  Peter's  Church,  3  N.  Y.  238.  This  judgment  is  not, 
•we  think,  in  accord  with  the  law  of  this  State,  and  must,  therefore,  be 
reversed.  The  case  was  argued  at  our  bar  with  great  ability,  and  the 
researches  of  the  several  counsel  have  materially  lightened  the  labors 
of  the  court. 

The  judgment  should  be  reversed  and  a  new  trial  granted. 

All  concur.  Judgment  reversed.1 


WITTERS  v.  GLOBE  SAVINGS  BANK  OF  CHICAGO. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  JANUARY  28- 
JUNE  22,   1898. 

[Reported  in  171  Massachusetts,  425.] 

TRUSTEE  process.  The  Chicago  Title  and  Trust  Company,  a  corpo- 
ration organized  under  the  laws  of  the  State  of  Illinois,  petitioned  to 
be  allowed  to  intervene  as  a  claimant  of  the  funds.  The  plaintiff  was 
an  inhabitant  of  Vermont. 

The  case  was  submitted  to  the  Superior  Court,  and,  after  judgment 
charging  the  trustee  and  dismissing  the  petitioner's  claim,  to  this  court, 
on  appeal,  upon  agreed  facts,  which  appear  in  the  opinion. 

M.  B.  Kendall,  for  the  claimant. 

F.  H.  Williams,  for  the  plaintiff. 

FIELD,  C.  J.  In  this  case  the  plaintiff  is  not  an  inhabitant  of  Mas- 
sachusetts, but  of  Vermont.  The  Chicago  Title  and  Trust  Company 
claims  title  to  the  funds  in  the  hands  of  the  alleged  trustee,  not  only 
by  virtue  of  the  decree  of  the  Circuit  Court  of  Cook  County  in  the 
State  of  Illinois,  entered  on  April  5,  1897,  appointing  it  a  receiver  of 
the  defendant,  but  by  virtue  of  an  assignment  under  seal  to  it  as  such 
receiver,  executed  by  the  defendant  on  April  6,  1897,  in  pursuance  of 
the  decree.  That  assignment  purports  to  convey  to  the  receiver  all 
the  property  and  effects  of  the  defendant  "  wheresoever  situate."  The 
defendant  is  a  corporation  organized  under  the  laws  of  the  State  of 
Illinois,  and  it  is  agreed  that  said  Circuit  Court  "had  jurisdiction  to 

1  Townsend  v.  Coxe,  151  Til.  62 ;  Weider  v.  Maddox,  66  Tex.  372,  376  (semblc) 
ace.     See  also  Franzen  v.  Hutchinson,  94  la.  95. 
Sanderson  v.  Bradford,  ION.  H.  260,  264,  contra. 


SECT.  II.]      WITTERS   V.    GLOBE   SAVINGS   BANK   OF   CHICAGO.  371 

appoint  said  receiver."  The  plaintiffs  writ  was  served  on  the  alleged 
trustee  on  April  13,  1897.  Such  an  assignee  has  a  right  to  intervene 
in  the  proceedings  and  claim  the  funds.  Buswell  v.  Order  of  the  Iron 
Hall,  161  Mass.  224;  Dennis  v.  Twitchell,  10  Met.  180;  Norton  v. 
Piscataqua  Ins.  Co.,  Ill  Mass.  532. 

We  think  that  the  assignment  must  be  held  valid  as  against  the  sub- 
sequent attachment  by  the  plaintiff.  Frank  v.  Bobbitt,  155  Mass.  112  ; 
Faulkner  v.  Hyman,  142  Mass.  53.  It  is  argued  by  the  counsel  for  the 
plaintiff  that  the  assignment  shown  in  this  case  is  not  voluntary,  and 
so  should  not  be  sustained  as  against  the  attachment,  and  Taylor  v. 
Columbian  Ins.  Co.,  14  Allen,  353,  is  relied  on.  The  assignment  in 
this  case  is  not  a  judicial  assignment  or  a  statutory  assignment,  but  a 
compulsory  assignment,  valid  by  the  laws  of  Illinois,  where  it  was 
made.  How  far  such  an  assignment  can  be  regarded  as  having  the 
effect  of  a  voluntary  assignment,  or  as  having  only  the  effect  of  a 
judicial  or  statutory  assignment,  has  not  been  decided  in  this  Com- 
monwealth. 

As  a  general  rule,  assignments  and  conveyances  which  defendants  in 
equitj-  are  compelled  to  make  are  as  valid  as  if  voluntarily  made.1  The 
case  sets  out  no  statutes  of  the  State  of  Illinois,  and  we  cannot  take 
judicial  notice  of  such  statutes.  We  must  assume  on  the  papers  before 
us  that  the  receiver  was  appointed  under  the  general  powers  of  a  court 
of  equity,  and  that  the  assignment  was  made  b}*^,  defendant  over  which 
the  court  had  full  jurisdiction.  See  High,  (3d  ed.)  §  244 ;  Gluck  & 
Becker,  Receivers  (2ded.)  225  et  seq.  It  seems  to  have  been  assumed 
by  all  parties  that  the  assignment  was  made  for  the  creditors  of  the  de- 
fendant under  proceedings  for  their  benefit.  Whatever  may  be  true  of 
such  an  assignment  when  credits  of  the  assignor  are  attached  here  by 
inhabitants  of  Massachusetts,  we  perceive  no  good  reason  why  we  should 
protect,  against  the  rights  of  the  assignee,  an  attachment  made  by  an 
inhabitant  of  Vermont  after  the  assignment.  See  Cunningham  v.  But- 
ler, 142  Mass.  47,  52;  Cole  v.  Cunningham,  133  U.  S.  107,  128;  May 
v.  Wannernacher,  111  Mass.  202  ;  Long  v.  Girdwood,  150  Penn.  St. 
413  ;  Burlock  v.  Taylor,  16  Pick.  335. 

Judgment  of  the  Superior  Court  charging  the  trustee  and  dis- 
missing the  petition  of  the  claimant  reversed,  and  judgment 
to  be  entered  allowing  said  petition  and  discharging  the 
trustee. 

1  Many  cases  to  this  effect  are  collected  in  Ames's  Cases  on  Equity  Jurisdiction, 
p.  10. 


372  IN  RE   EMSLIE.  [CHAP.  V. 


SECTION  III. 
DISSOLUTION  OF  LIENS. 

IN  RE  EMSLIE. 

CIRCUIT  COURT  OP  APPEALS  FOR  THE  SECOND  CIRCUIT,  MAT  24,  1900. 
[Reported  in  102  Federal  Reporter,  291.] 

BEFORE  WALLACE,  LACOMBE,  and  SHIPMAN,  Circuit  Judges. 

WALLACE,  Circuit  Judge.  This  is  an  appeal  from  an  order,  granted 
upon  the  application  of  a  trustee  in  bankruptcy,  staying  an  action 
brought  in  a  State  court  by  a  subcontractor  to  foreclose  a  lien,  claimed 
under  the  New  York  mechanic's  lien  law,  for  the  labor  and  materials 
furnished  in  building  a  house.  The  notice  of  lien  was  filed  by  the  sub- 
contractor April  28,  1899.  August  15,  1899,  upon  a  petition  in  invol- 
untar}-  bankruptcy  filed  by  creditors,  the  contractors  who  erected  the 
house  for  the  owner  of  the  real  estate  were  adjudicated  bankrupts. 
The  action  to  foreclose  the  lien  was  commenced  August  16,  1899. 

We  agree  with  the  court  below  that  a  valid  lien  was  not  acquired  by 
the  subcontractor,  owing  to  the  omission  to  comply  with  the  terms  of 
the  statute,  which  required  the  notice  of  lien  to  specify  "  the  agreed 
price  or  value  of  the  labor  performed  or  to  be  performed  and  materials 
furnished  or  to  be  furnished,"  and  ' '  the  time  when  the  first  and  last 
items  of  work  are  performed  and  materials  are  furnished."  Laws  N.  Y. 
1897,  c.  418,  §  9.  The  notice  of  lien  does  not  attempt  to  comply  with 
either  of  these  requirements,  but  states  merely  that  "  there  remains 
due  and  unpaid  (under  contracts  with  Holland  Emslie  &  Son)  the  sum 
of  §1,700."  Not  only  is  there  no  statement  of  the  contract  price,  or 
the  value  of  the  work  and  materials,  or  of  the  time  when  the  first  and 
last  items  were  furnished,  but  there  are  no  statements  which  by  any 
possible  implication  can  supply  any  information  about  these  facts. 
The  statute  is  to  be  liberally  construed  in  aid  of  every  beneficial  pur- 
pose which  was  contemplated  in  its  enactment,  and  a  substantial  com- 
pliance with  its  provisions  is  sufficient  to  uphold  the  lien.  But  a 
construction  which  would  uphold  a  notice  like  the  present  would  nullify 
its  provisions,  which  are  intended  for  the  benefit  of  every  claimant  as 
well  as  for  the  owner  of  the  property.  Foster  v.  Schneider  (Sup.) 
2  N.  Y.  Supp.  875 ;  Brandt  v.  Verdon  (Com.  PL)  18  N.  Y.  Supp.  119. 
As  was  said  in  the  former  of  these  decisions  : 

"  To  entitle  a  claimant  to  its  benefits,  the  directions  of  the  statute 
must  be  substantially  observed.  If  they  are  not,  the  Hen  cannot  be 
secured,  and  the  court  has  no  power  or  authority  to  sustain  the  pro- 


SECT.  III.]  IN   RE   EMSLIE.  373 

ceeding :  for  a  substantial  compliance  with  the  requirements  of  the  stat- 
ute is  necessary  to  confer  jurisdiction." 

We  are  constrained  to  differ  from  the  opinion  of  the  court  below  that 
the  lien  was  void,  as  against  the  trustee  in  bankruptc}',  irrespective  of 
the  insufficiency  of  the  notice.  The  statute  gives  a  lien  for  the  value 
or  the  agreed  price  of  the  labor  and  materials  from  the  time  of  the  filing 
of  the  notice,  authorizes  the  notice  to  be  filed  at  any  time  during  the 
progress  of  the  work  or  within  ninety  days  thereafter,  provides  that  if 
an  action  shall  not  be  brought  to  enforce  the  lien  within  a  specified 
time  the  lien  shall  be  discharged,  and  prescribes  the  procedure  in  an 
action  to  enforce  the  lien.  When  the  notice  is  filed,  provided  the  filing 
is  within  the  period  prescribed,  the  lien  binds  the  property  to  priority 
of  payment  in  favor  of  the  lienor  for  any  indebtedness  for  improving 
the  propert}7  due  from  the  owner,  as  against  subsequently  acquired 
rights  and  titles.  It  will  be  observed  that,  although  the  lien  is  not 
created  until  the  filing  of  the  notice,  this  is  an  act  optional  with  the 
mechanic  or  material  man,  and,  if  he  chooses,  he  can  perfect  a  lien  day 
by  day  concurrently  with  the  progress  of  the  work. 

A  trustee  in  bankruptcy  cannot  acquire  a  better  title  than  the  bank- 
rupts had,  except  as  to  property  which  has  been  transferred  contrary 
to  the  provisions  of  the  bankrupt  act,  and  takes  the  estate  subject  to 
all  liens  and  incumbrances  other  than  those  enumerated  in  section  67. 
That  section  denies  the  privileges  of  a  lien  to  claims  which,  for  want 
of  record  or  for  other  reasons,  would  not  have  been  valid  as  against 
creditors  if  there  had  been  no  bankruptcy,  and  enumerates  the 
liens  and  incumbrances  which  are  dissolved  by  the  adjudication  of 
bankruptc}',  or  can  be  kept  on  foot  and  enforced  b}-  the  trustee  for  the 
benefit  of  the  estate.  The  latter  consists  of  two  classes,  —  liens  ob- 
tained through  legal  proceedings  against  an  insolvent  debtor  within 
four  months  prior  to  the  filing  of  a  petition  in  bankruptcy  against 
him,  and  incumbrances  created  by  the  act  of  the  bankrupt  within  four 
months  prior  to  the  filing  of  the  petition,  which  are  intended  to  defraud 
creditors  or'are  void  by  the  laws  of  the  State  in  which  the  property  is 
situated.  The  section  preserves  all  liens  given  or  accepted  for  a  pres- 
ent consideration.  In  our  opinion,  liens  like  the  present  do  not  fall 
within  either  of  the  two  classes.  They  are  not  within  the  first  class, 
because  they  are  not  created  or  obtained  through  legal  proceedings, 
either  in  strict  definition  or  in  the  ordinary  meaning  of  the  term.  A 
legal  proceeding  is  any  proceeding  in  a  court  of  justice  by  which  a 
party  pursues  a  remedy  which  the  law  affords  him.  The  term  embraces 
any  of  the  formal  steps  or  measures  employed  in  the  prosecution  or 
defence  of  a  suit.  In  the  section  it  obviously  refers  to  the  use  of  ju 
dicial  process,  the  phraseology  being  "  levies,  judgments,  attachments, 
or  other  liens  obtained  through  legal  proceedings."  The  filing  of 
notice  of  a  mechanic's  lien  has  no  necessary  relation  to  the  initiation 
or  the  prosecution  of  a  suit.  The  filing  is  essential  in  order  to  main- 
tain the  action  to  foreclose  the  lien,  because  otherwise  the  lien  does 


374  IN   RE    EMSLIE.  ,    [CHAP.  V. 

not  attach ;  but  it  is  no  more  a  preliminary  step  in  the  suit  than  is  the 
protesting  of  a  note  in  a  suit  against  the  indorser.  It  is  a  proceeding 
of  the  same  kind  as  filing  a  chattel  mortgage  or  recording  a  deed. 

Such  liens  are  not  within  the  second  class,  because  they  are  not  an 
incurabrance  created  by  the  debtor.  They  are  created  by  the  statute, 
or  by  the  act  of  the  lienor  in  filing  the  statutory  notice.  The  incum- 
brances  which  are  invalidated  by  the  section  are  those  which  are 
"  made  or  given  "  by  the  person  adjudged  a  bankrupt.  They  include, 
not  only  those  specifically  mentioned,  "  conveyances,  transfers,  and 
assignments,"  but  all  incumbrances,  of  whatever  form,  derived  from 
his  contractual  act.  Unless  it  can  be  said  that  the  lien  emanates  in  or 
is  created  by  the  contract  authorizing  the  labor  and  materials  to  be 
furnished,  it  arises  without  his  act.  If  it  is  a  creature  of  the  contract, 
rather  than  of  the  statute,  it  is  supported  by  the  same  consideration, 
and,  being  given  for  a  "present  consideration,"  is  preserved  by  the 
section. 

There  are  no  equitable  considerations  in  favor  of  the  general  creditors 
of  a  debtor  which  should  defeat  a  mechanic's  lien.  Every  creditor 
dealing  with  the  debtor  does  so  with  the  knowledge  that  those  who  are 
furnishing  labor  and  materials  for  the  building  can,  if  they  choose,  ac- 
quire a  priority  of  pa3*ment  over  other  creditors.  Statutes  giving  such 
liens  are  designed  to  enable  mechanics  and  material  men  to  rely  upon 
the  security  of  the  building  itself,  without  looking  to  the  responsibility 
of  the  owner.  The  justice  and  expediency  of  giving  such  claims  priority 
over  the  debts  of  general  creditors  is  manifested  in  the  legislation  of 
the  several  States.  We  cannot  believe  that  it  was  the  intention  of  Con- 
gress to  put  them  upon  the  footing  of  the  liens  particularly  mentioned 
in  section  67.  The  question  of  the  validity  of  such  liens  was  considered 
by  the  Circuit  Court  of  Appeals  for  the  Seventh  Circuit.  In  re  Kerby- 
Dennis  Co.,  36  C.  C.  A.  677,  95  Fed.  116.  In  considering  the  provi- 
sions of  section  67  the  court  used  this  language  : 

"  We  cannot  indulge  the  presumption  that  Congress  intended  to  avoid 
a  lien  secured  by  the  act  of  labor,  and  preserved  and  continued  in  force 
only  when  legal  proceedings  are  instituted  within  a  specified  time.  Such 
a  construction  would  avoid  all  mechanic's  liens,  and  all  the  liens  of 
laborers,  which  the  laws  of  various  States  have  for  years  sought  to  pro- 
tect and  to  prefer." 

We  agree  with  the  opinion  of  that  court  that  the  terms  of  section  67 
do  not  invalidate  such  a  lien.  The  learned  judge  in  the  court  below 
thought  the  lien  given  by  the  New  York  statute  was  to  be  distinguished 
from  the  lien  given  by  the  statute  of  Michigan,  which  was  under  con- 
sideration in  that  case,  by  the  circumstance  that  the  lien  under  the 
New  York  statute  originates  in  the  filing  of  the  notice  of  lien,  while  in 
the  Michigan  statute  it  originates  by  the  act  of  furnishing  the  labor  or 
materials,  and  is  thus  a  strict!}7  contemporaneous  lien.  We  do  not 
discover  an}^  substantial  distinction  between  the  two  statutes.  In  one 
the  lien  is  not  given  unless  the  notice  is  filed  ;  in  the  other,  although  it 


SECT.  III.]  HENDERSON   V.   MAYER.  375 

arises  when  the  labor  or  materials  are  furnished,  it  is  lost  unless  a 
notice  is  filed  within  a  specified  time.  The  object  of  both  statutes  is 
the  same,  and  both  accomplish  practically  the  same  result.  In  one  the 
filing  of  the  notice  is  necessary  to  perfect  the  lien,  and  in  the  other  it 
is  necessary  to  preserve  it.  in  both  it  is  wholly  optional  with  the  lienor 
whether  he  will  avail  himself,  or  not,  of  his  right  of  priority.1 

We  have  thought  it  necessary  to  discuss  the  questions  which  have 
been  considered  in  regard  to  the  efficacy  of  the  lien,  because,  in  making 
the  order,  the  court  below  passed  upon  these  questions  apparently  with 
the  view  of  determining  the  rights  of  the  parties  to  the  fund  in  con- 
troversy. The  order  staying  the  action  in  the  State  court  was  a  proper 
exercise  of  power,  and  should  not  be  disturbed.  That  action  was  an 
interference  with  assets  of  the  bankrupts  in  the  custody  of  the  bank- 
ruptcy court  over  which  that  court  had  previously  acquired  jurisdiction  ; 
and,  as  it  was  brought  without  the  leave  of  the  court,  the  order  staying 
its  prosecution  was  properly  granted,  within  the  principle  of  the  deci- 
sion of  this  court  in  the  recent  case  of  In  re  Russell  (C.  C.  A.)  101 
Fed.  248. 

The  order  is  affirmed,  without  costs. 


HENDERSON  v.   MAYER. 
SUPREME  COURT  OF  THE  UNITED  STATES,  APRIL  19-JuNE  7,  1912. 

[Reported  in  225  United  States,  631.] 

MR.  JUSTICE  LAMAR  delivered  the  opinion  of  the  court: 
The  provisions  of  the  Bankruptcy  Act,  preventing  an  insolvent  from 
giving  or  the  creditor  from  securing  preferences  for  pre-existing  debts, 
apply  not  only  to  mortgages  and  transfers  voluntarily  made  by  the 
debtor,  but  also  to  those  preferences  which  are  obtained  through  legal 
proceedings,  whether  the  lien  dates  from  the  entry  of  the  judgment, 
from  the  attachment  before  judgment,  or,  as  in  some  States,  from  the 
levy  of  execution  after  judgment.  But  the  statute  was  not  intended 
to  lessen  rights  which  already  existed,  nor  to  defeat  those  inchoate 
liens  given  by  statute,  of  which  all  creditors  were  bound  to  take  notice 
and  subject  to  which  they  are  presumed  to  have  contracted  when  they 
dealt  with  the  insolvent. 

Liens  in  favor  of  laborers,  mechanics  and  contractors  are  of  this 
character;  and  although  they  may  be- perfected  by  record  or  fore- 
closure within  four  months  of  the  bankruptcy,  they  are  not  created  by 
judgments,  nor  are  they  treated  as  having  been  "  obtained  through 
le#al  proceedings,"  even  when  it  is  necessary  to  enforce  them  by  some 
form  of  legal  proceeding.  The  statutes  of  the  various  States  differ  as 
to  the  time  when  such  liens  attach,  and  also  as  to  the  property  they 


376  HENDERSON   V.   MAYER.  [CHAP.  V. 

cover.  They  may  bind  only  what  the  plaintiff  has  improved  or  con- 
structed ;  or  they  may  extend  to  all  the  chattels  of  the  debtor,  or  "  all 
the  property  involved  in  the  business."  In  re  Bennett  (C.  C.  A.,  6th 
Cir.),  153  Fed.  673. 

In  some  cases  the  lien  dates  from  commencement  of  the  work,  or 
from  the  completion  of  the  contract.  In  others,  prior  to  levy  they  are 
referred  to  as  being  dormant  or  inchoate  liens,  or  as  "a  right  to  a 
lien."  In  re  Bennett,  supra;  In  re  Laird  (C.  C.  A.,  6th  Cir.),  109  Fed. 
550.  But  the  courts,  dealing  specially  with  bankruptcy  matters,  have 
almost  uniformly  held  that  these  statutory  preferences  are  not  obtained 
through  legal  proceedings,  and,  therefore,  are  not  defeated  by  sec- 
tion 67f,  even  where  the  registration,  foreclosure  or  levy  necessary  to 
their  completion  or  enforcement  was  within  four  months  of  the  filing 
pf  the  petition  in  bankruptcy. 

Similar  rulings  have  been  made  where  the  landlord  has  only  a  com- 
mon-law right  of  distress.  In  re  West  Side  Paper  Co.  (C.  C.  A.,  3rd 
Cir.),  162  Fed.  110.  This  is  often  referred  to  as  a  lien,  but  it  is  "  only 
in  the  nature  of  security."  3  Black.  Com.  18.  The  pledge,  or  quasi- 
pledge,  which  the  landlord  is  said  to  have,  is,  at  most,  only  a  power 
to  seize  chattels  found  on  the  rented  premises.  These  he  could  take 
into  possession  and  hold  until  the  rent  was  paid.  Doe  ex  dem  Glad- 
ney  v.  Deavors,  11  Ga.  84.  But  before  the  distraint  the  landlord  at 
common  law  has  "no  lien  on  any  particular  portion  of  the  goods  and 
is  only  an  ordinary  creditor  except  that  he  has  the  right  of  distress  by 
reason  of  which  he  may  place  himself  in  a  better  position."  Sutton  v. 
Reese,  9  Jur.  (N.  S.)  456. 

A  right  fully  as  great  is  created  by  the  Georgia  statute  here  in  ques- 
tion. For  while  giving  the  owners  of  agricultural  lands  a  special  lien 
on  the  crops,  there  was  no  intention  to  deprive  the  proprietor  of  urban 
and  other  real  estate  of  the  lien  for  rent  which  there,  as  in  other  States, 
is  treated  as  an  incident  growing  out  of  the  relation  of  landlord  and 
tenant. 

[The  court  stated  that  under  the  Act  of  1867  similar  liens  had  been 
held  not  to  be  dissolved  and  added] : 

There  is  nothing  in  the  Act  of  1898  opposed  to  this  conclusion.  On 
the  contrary,  its  general  provisions  indicate  a  purpose  to  continue  the 
same  policy  and  an  intent,  as  against  general  creditors,  to  preserve 
rights  like  those  given  by  the  Georgia  statute  to  landlords,  even  though 
the  lien  was  enforced  and  attached  by  levy  of  a  distress  warrant  within 
four  months  of  the  filing  of  the  petition  in  bankruptcy.  Affirmed. 


SECT.  III.]  METCALF  V.   BARKER.  377 


METCALF  v.  BARKER.  -, 

SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  SO-DECEMBER  1, 

1902. 
[Reported  in  187  United  States,  165.] 

MR.  CHIEF  JUSTICE  FULLER  delivered  the  opinion  of  the  court. 

Metcalf  Brothers  &  Company,  judgment  creditors  of  Lesser  Brothers, 
commenced  their  creditors'  suit  in  the  Supreme  Court  of  New  York, 
December  17,  1896.  The  case  came  to  trial  December  17,  1897,  and 
decree  was  rendered  April  6,  1898.  22  Misc.  Rep.  664.  On  appeal 
the  appellate  division  affirmed  the  judgment  of  the  trial  court  in  part, 
and  reversed  it  in  part,  and  directed  the  paj'ment  by  the  receivers  to 
Metcalf  Brothers  &  Company  of  the  amount  of  their  judgments  out  of 
the  money  in  the  receivers'  hands.  35  App.  Div.  596.  This  decree  or 
judgment  was  embodied  in  an  order  dated  December  30,  1898,  but  the 
clerk  of  the  Supreme  Court  appears  not  to  have  entered  it  until  Janu- 
ary 31,  1899.  The  decision  of  the  Court  of  Appeals,  161  N.  Y.  587, 
was  made  February  6,  1900,  and  the  remittitur  was  received  and  filed 
in  the  court  below  March  12,  1900. 

The  bankruptcy  law  was  approved  July  1,  1898.  May  12,  1899, 
Lesser  Brothers  filed  their  petition  in  bankruptcy  and  were  adjudicated 
bankrupts,  and  Barker  was  appointed  trustee  June  7,  1899.  March  8, 
1900,  the  bankrupts'  trustee  procured  from  the  District  Court  an  order 
entitled  in  the  bankruptcy  proceedings  requiring  Metcalf  Brothers  & 
Company  to  show  cause  on  March  13  why  a  w.rit  of  injunction  should 
not  issue  enjoining  them  from  taking  an}*  further  proceedings  under 
any  judgment  in  their  creditors'  action,  and  so  enjoining  them  in  the 
interim,  which  injunction,  after  argument  on  the  merits,  was  continued. 
No  question  arises  here  in  respect  of  real  estate,  and  on  the  case  stated 
in  the  certificate  the  property  affected  was  equitable  assets.  There  had 
been  tangible  personal  property,  subject  to  levy  and  sale  under  execu- 
tion, but  this  had  been  previously  sold  by  an  order  of  the  Supreme 
Court  of  New  York  and  the  proceeds  were  held  by  receivers. 

The  general  rule  is  that  the  filing  of  a  judgment  creditors'  bill  and 
service  of  process  creates  a  lien  in  equity  on  the  judgment  debtor's 
equitable  assets.  Miller  v.  Sherry,  2  Wall.  237 ;  Freedrnan's  Savings 
&  Trust  Company  v.  Earle,  110  U.  S.  710.  And  such  is  the  rule  in 
New  York.  Storm  v.  Waddell,  2  Sandf.  Cb.  494;  Lynch  v.  Johnson, 
48  N.  Y.  27;  First  National  Bank  v.  Shuler,  153  N.  Y.  163.  This 
was  conceded  by  the  District  Court,  but  the  court  held  that  the  lien  so 
created  was  "  contingent  upon  the  recover}'  of  a  valid  judgment,  and 
liable  to  be  defeated  by  anything  that  defeats  the  judgment,  or  the  right 
of  the  complainants  to  appropriate  the  fund;"  that  "such  a  contin- 
gent or  equitable  lien,  it  is  evident,  cannot  be  superior  to  the  judgment 
on  which  it  depends  to  make  it  effectual,  but  must  stand  or  fall  with 
the  judgment  itself;  "  and  that  "  section  67 /,  therefore,  in  declaring 


378  METCALF   V.   BARKER.  [CHAP.  V. 

that  a  judgment  recovered  within  four  months  '  shall  be  deemed  null 
and  void,'  etc.,  necessarily  prevents  the  complainants  from  acquiring 
anv  benefit  from  the  lien,  or  the  fund  attached,  except  through  the 
trustee  in  bankruptcy  pro  rata  with  other  creditors,"  it  being  also  held 
that,  although  the  judgment  at  special  term  was  rendered  more  than 
four  months  before  the  filing  of  the  petition,  yet  that  the  judgment  of 
the  appellate  division,  as  affirmed  by  the  Court  of  Appeals,  was  within 
the  four  months.  100  Fed.  Rep.  433. 

Assuming  that  the  judgment  at  special  term  is  to  be  disregarded, 
and  that  the  judgment  of  the  appellate  division  was  entered  within  the 
four  months,  it  will  be  perceived  that  if  the  views  of  the  District  Court 
were  correct,  the  third  question  propounded  should  be  answered  in  the 
negative,  while  if  incorrect,  that  question  should  be  answered  in  the 
affirmative. 

Doubtless  the  lien  created  by  a  judgment  creditors'  bill  is  contingent 
in  the  sense  that  it  might  possibly  be  defeated  by  the  event  of  the  suit, 
but  in  itself,  and  so  long  as  it  exists,  it  is  a  charge,  a  specific  lien,  on 
the  assets,  not  subject  to  being  divested  save  by  payment  of  the  judg- 
ment sought  to  be  collected. 

The  subject  was  fully  discussed  and  the  effect  of  bankruptcy  proceed- 
ings considered  by  Vice  Chancellor  Sandford  in  Storm  v.  Waddell, 
2  Sandf.  Ch.  494,  which  has  been  so  repeatedly  recognized  with  ap- 
proval as  to  have  become  a  leading  case. 

As  Mr.  Justice  Swayne  remarked  in  Miller  v.  Sherry,  the  commence- 
ment of  the  suit  amounts  to  an  equitable  lev)',  2  Wall.  249  ;  or,  in  the 
language  of  Mr.  Justice^  Matthews,  in  Freedman's  Savings  &  Trust 
Company  v.  Earle,  "  It  is  the  execution  first  begun  to  be  executed, 
unless  otherwise  regulated  by  statute,  which  is  entitled  to  priority. 
The  filing  of  the  bill,  in  cases  of  equitable  execution,  is  the  beginning 
of  executing  it."  110  U.  S.  717.  And  the  right  to  payment  out  of 
the  fund  so  vested  cannot  be  affected  by  a  subsequent  transfer  by  the 
debtor.  McDermutt  v.  Strong,  4  Johns.  Ch.  687,  or  taken  away  by  a 
subsequent  discharge  in  bankruptcy.  Hill  v.  Harding,  130  U.  S.  699  ; 
Doe  /•.  Childress,  21  Wall.  642;  Eyster  v.  Gaff,  91  U.  S.  521  ;  Peck 
v.  Jenness,  7  How.  612. 

Kittredge  v.  Warren,  14  N.  H.  509,  was  relied  on  as  to  the  effect  of 
attachments  on  mesne  process  in  New  Hampshire  in  Peek  v.  Jenness. 
And  it  may  be  remarked  that  Chief  Justice  Parker's  vigorous  discus- 
sion in  that  case  of  the  point  that  the  attachment  lien  was  not  contin- 
gent on  a  subsequent  judgment  is  a  fortiori,  applicable  in  cases  where 
the  prior  establishment  of  the  creditor's  claim  is  the  foundation  of  the 
creditor's  suit. 

Granting  that  possession  of  the  power  "  to  establish  uniform  laws 
on  the  subject  of  bankruptcies  "  enables  Congress  to  displace  these 
well-settled  principles  and  to  divest  rights  so  acquired,  we  do  not  think 
that  Congress  has  attempted  to  do  so. 

Section  67 /provides:   "That  all  levies,  judgments,  attachments,  or 


SECT.  III.]  METCAiF  V.   BARKER.  379 

other  liens,  obtained  through  legal  proceedings  against  a  person  who  is 
insolvent,  at  an}-  time  within  four  months  prior  to  the  filing  of  a  petition 
in  bankruptcy  against  him,  shall  be  deemed  null  and  void  in  case  he  is 
adjudged  a  bankrupt,  and  the  property  affected  by  the  lev}-,  judgment, 
attachment,  or  other  lien  shall  be  deemed  wholly  discharged  and  re- 
leased from  the  same,  and  shall  pass  to  the  trustee  as  a  part  of  the 
estate  of  the  bankrupt,  unless  the  court  shall,  on  due  notice,  order  that 
the  right  under  such  levy,  judgment,  attachment,  or  other  lien  shall  be 
preserved  for  the  benefit  of  the  estate  ;  and  thereupon  the  same  may 
pass  to  and  shall  be  preserved  by  the  trustee  for  the  benefit  of  the  es- 
tate as  aforesaid.  And  the  court  may  order  such  conveyance  as  shall 
be  necessary  to  carry  the  purposes  of  this  section  into  effect." 

In  our  opinion  the  conclusion  to  be  drawn  from  this  language  is  that 
it  is  the  lien  created  by  a  levy,  or  a  judgment,  or  an  attachment,  or 
otherwise,  that  is  invalidated,  and  that  where  the  lien  is  obtained  more 
than  four  months  prior  to  the  filing  of  the  petition,  it  is  not  only  not 
to  be  deemed  to  be  null  and  void  on  adjudication,  but  its  validity  is 
recognized.  When  it  is  obtained  within  four  months  the  property  is 
discharged  therefrom,  but  not  otherwise.  A  judgment  or  decree  in  en- 
forcement of  an  otherwise  valid  pre-existing  lien  is  not  the  judgment 
denounced  by  the  statute,  which  is  plainly  confined  to  judgments  creat- 
ing liens.  If  this  were  not  so  the  date  of  the  acquisition  of  a  lien  by 
attachment  or  creditor's  bill  would  be  entirely  immaterial. 

Moreover  other  provisions  of  the  act  render  it  unreasonable  to  im- 
pute the  intention  to  annul  all  judgments  recovered  within  four  months. 
By  section  63  a,  fixed  liabilities  evidenced  by  judgments  absolutely 
owing  at  the  time  of  the  filing  of  the  petition,  or  founded  upon  provable 
debts  reduced  to  judgments  after  the  filing  of  the  petition  and  before 
the  consideration  of  application  for  discharge,  may  be  proved  and  al- 
lowed, while  under  section  17  judgments  in  actions  of  fraud  are  not 
released  by  a  discharge,  and  other  parts  of  the  act  would  be  wholly 
unnecessary  if  section  67/must  be  taken  literally. 

Many  of  the  District  Courts  have  reached  and  announced  a  similar 
conclusion :  In  re  Blair,  108  Fed.  Rep.  529  ;  In  re  Beaver  Coal  Com- 
pany, 110  Fed.  Rep.  630;  In  re  Kavanangh,  99  Fed.  Rep.  928  ;  In  re 
Pease,  4  Amer.  Bank.  Rep.  547  ;  as  have  also  the  Supreme  Court  of 
Rhode  Island  and  the  Chancery  Court  of  New  Jersey  in  well-considered 
decisions.  Doyle  v.  Heath,  22  R.  I.  213  ;  Taylor  "v.  Taylor,  59  N.  J. 
Eq.  86.  And  see  Wakeman  v.  Throckmorton,  51  Atl.  Rep.  554. 

As  under  section  70  a,  e,  and  section  67  e,  the  trustee  is  vested  with 
the  bankrupt's  title  as  of  the  data  of  the  adjudication,  and  subrogated 
to  the  rights  of  creditors,  the  foregoing  considerations  require  an 
affirmative  answer  to  the  third  question,  but  in  answering  the  first 
question  some  further  observations  must  .be  made.  This  creditors' 
action  was  commenced  December  17,  1896,  more  than  eighteen  months 
before  the  passage  of  the  bankruptcy  act,  and  was  prosecuted  with 
exemplary  diligence  to  final  and  complete  success  in  the  judgment  of 


380  METCALF   V.   BARKER.  [CHAP.  V. 

the  Court  of  Appeals.  At  this  point  the  bankruptcy  court  intervened 
and  on  summary  proceedings  enjoined  Metcalf  Brothers  &  Company 
from  receiving  the  fruits  of  their  victory.  The  State  courts  had  juris- 
diction over  the  parties  and  the  subject  matter,  and  possession  of  the 
propert}'.  And  it  is  well  settled  that  where  property  is  in  the  actual 
possession  of  the  court,  this  draws  to  it  the  right  to  decide  upon  con- 
flicting claims  to  its  ultimate  possession  and  control. 

In  Peck  v.  Jenness,  7  How.  612,  the  District  Court  had  decided  that 
the  lien  of  an  attachment  issued  out  of  a  court  of  New  Hampshire  was 
defeasible  and  invalid  as  against  an  assignee  in  bankruptcy.  But  this 
court  held  that  this  was  not  so,  and  that  the  District  Court  had  no  su- 
pervisory power  over  the  State  courts,  and  Mr.  Justice  Grier  said  :  "  It 
is  a  doctrine  of  law  too  long  established  to  require  a  citation  of  author- 
ities, that,  where  a  court  has  jurisdiction,  it  has  a  right  to  decide  every 
question  which  occurs  in  the  cause,  and  whether  its  decision  be  correct 
or  otherwise,  its  judgment,  till  reversed,  is  regarded  as  binding  in 
everj*  other  court ;  and  that,  where  the  jurisdiction  of  a  court,  and  the 
right  of  a  plaintiff  to  prosecute  his  suit  in  it,  have  once  attached,  that 
right  cannot  be  arrested  or  taken  away  by  proceedings  in  another 
court.  These  rules  have  their  foundation,  not  merely  in  comity,  but  on 
necessity.  For  if  one  may  enjoin,  the  other  may  retort  by  injunction, 
and  thus  the  parties  be  without  remed}' ;  being  liable  to  a  process  for 
contempt  in  one,  if  they  dare  to  proceed  in  the  other.  .  .  .  The  fact, 
therefore,  that  an  injunction  issues  only  to  the  parties  before  the  court, 
and  not  to  the  court,  is  no  evasion  of  the  difficulties  that  are  the  neces- 
sary result  of  an  attempt  to  exercise  that  power  over  a  part}'  who  is  a 
litigant  in  another  and  independent  forum."  The  rule  indicated  was 
applied  under  the  act  of  1841  in  Clarke  v.  Rist,  3  McLean,  494  ;  under 
the  act  of  1867,  by  Mr.  Justice  Miller  in  Johnson  v.  Bishop,  Wool- 
worth,  324,  and  by  Mr.  Justice  Nelson,  in  Sedgwick  v.  Menck,  21  Fed. 
Cases,  984,  and  under  the  act  of  1898,  among  other  cases,  by  the  Cir- 
cuit Court  of  Appeals  for  the  Fourth  Circuit  in  Frazier  v.  Southern 
Loan  and  Trust  Company,  99  Fed.  Rep.  707,  and  Pickens  v.  Dent, 
106  Fed.  Rep.  653.1 

"White  v.  Schloerb,  178  U.  S.  542,  proceeded  on  the  familiar  doctrine 
that  property  in  the  custody  of  a  court  of  the  United  States  cannot  be 
taken  out  of  that  custody  by  any  process  from  a  State  court,  and  the 
jurisdiction  of  the  District  Court  sitting  in  bankruptcy  by  summary 
proceedings  to  maintain  such  custody  was  upheld.  Mr.  Justice  Gray, 
speaking  for  the  court,  said  :  "By  section  720  of  the  Revised  Statutes, 
'  The  writ  of  injunction  shall  not  be  granted  by  any  court  of  the 
United  States  to  stay  proceedings  in  any  court  of  a  State,  except  in 
cases  where  such  injunction  may  be  authorized  by  any  law  relating  to 
proceedings  in  bankruptcy.^  Among  the  powers  specifically  conferred 
upon  the  court  of  bankruptcy  by  section  2  of  the  bankrupt  act  of  1898 

1  Affirmed  by  this  court  sub  nomine  Pickens  v.  Roy,  187  U.S.  177. 


SECT.  III.]  PICKENS  V.   ROY.  381 

are  to  '  (15)  make  such  orders,  issue  such  process,  and  enter  such 
judgments,  in  addition  to  those  specificalh'  provided  for,  as  may  be 
necessary  for  the  enforcement  of  the  provisions  of  this  act.'  30  Stat. 
546.  And  by  clause  3  of  the  Twelfth  General  Order  in  Bankruptcy 
applications  to  the  court  of  bankruptc}'  '  for  an  injunction  to  sta}r  pro- 
ceedings of  a  court  or  officer  of  the  United  States,  or  of  a  State,  shall 
be  heard  and  decided  by  the  judge  ;  but  he  may  refer  such  an  applica- 
tion, or  any  specified  issue  arising  thereon,  to  the  referee  to  ascertain 
and  report  the  facts.'  172  U.  S.  657.  Not  going  beyond  what  the 
decision  of  the  case  before  us  requires,  we  are  of  opinion  that  the 
judge  of  the  court  of  bankruptcy  was  authorized  to  compel  persons, 
who  had  forcibly  and  unlawfully  seized  and  taken  out  of  the  judicial 
custod}-  of  that  court  property  which  had  lawfully  come  into  its  posses- 
sion as  part  of  the  bankrupt's  property,  to  restore  that  propert}7  to  its 
custody." 

This  cautious  utterance  —  and  courts  must  be  cautious  when  dealing 
with  a  conflict  of  jurisdiction  —  sustains  as  far  as  it  goes  the  converse 
of  the  proposition  when  presented  b}-  a  different  state  of  facts. 

We  are  of  opinion  that  the  jurisdiction  of  the  District  Court  to  make 
the  injunction  order  in  question  cannot  be  maintained.  Louisville 
Trust  Company  v.  Comingor,  184  U.  S.  18,  26. 

The  first  question  will  be  answered  in  the  negative,  and  the  third 
question  in  the  affirmative,  and  it  is  unnecessary  to  answer  the  other 
questions.  Certificate  accordingly. 


PICKENS   v.   ROY. 

SUPREME  COURT  OP  THE  UNITED  STATES,  NOVEMBER  10- 
DECEMBER  1,  1902. 

[Reported  in  187   United  States,  177.] 

MR.  CHIEF  JUSTICE  FULLER  delivered  the  opinion  of  the  court. 

This  is  an  appeal  from  a  decree  of  the  United  States  Circuit  Court 
of  Appeals  for  the  Fourth  Circuit  affirming  the  decree  of  the  District 
Court  for  the  District  of  West  Virginia  dissolving  an  injunction  and 
dismissing  a  bill  filed  in  that  court  by  Dever  Pickens  against  Susan  C. 
Dent  and  others.  106  Fed.  Rep.  653. 

The  facts  necessary  to  be  considered  in  disposing  of  the  case  were 
stated  by  the  Circuit  Court  of  Appeals  in  substance  as  follows:  January 
24,  1889,  Susan  C.  Dent  (afterwards  Susan  C.  Dent  Roy)  exhibited  her 
bill  in  the  Circuit  Court  of  Barbour  County,  West  Virginia,  against  Dever 
Pickens  and  others,  to  set  aside  as  fraudulent  a  certain  deed  made  by 
Pickens  to  trustees,  bearing  date  January  14,  1889,  and  assailing  as 


382  PICKENS   V.   ROY.  [CHAP.  V. 

fraudulent  certain  indebtedness  thereby  secured.  At  the  succeeding 
September  rules  an  amended  bill  was  filed  alleging  that  complainant 
Dent  (Roy)  on  July  23,  1889,  recovered  a  judgment  at  law  against 
Pickens  for  the  sum  of  $10,000,  with  interest  and  costs.  Complainant 
prayed  that  the  real  estate  mentioned  in  the  bill  as  the  property  of 
Pickens,  and  described  in  the  trust  deed,  might  be  sold,  and  the  pro- 
ceeds applied  to  the  payment  of  her  judgment  and  in  satisfaction  of  the 
liens  existing  on  the  land.  The  judgment  was  subsequently  reversed, 
and  a  retrial  resulted  on  February  27,  1892,  in  a  judgment  for  $9,000, 
with  interest  and  costs,  and  a  second  amended  bill  was  tiled  so 
alleging. 

The  Circuit  Court  of  Appeals  did  not  deem  it  essential  to  give  a 
history  of  the  many  years  of  "  hard  fought  and  well  contested  litiga- 
tion," which  followed,  but  stated  that  the  case  was  pending  and  undis- 
posed of  by  the  Circuit  Court  of  Barbour  County,  October  30,  1899, 
when  Pickens  was  adjudicated  a  bankrupt  by  the  District  Court  of  the 
United  States  for  the  District  of  West  Virginia  on  a  petition  filed 
October  27.  After  the  adjudication,  and  on  November  2,  1899,  Pick- 
ens  filed  an  answer  in  the  chancery  cause,  in  which  he  set  up  the  pro- 
ceedings in  bankruptcj',  asked  that  all  further  action  in  the  State  court 
might  be  suspended  until  the  District  Court  had  disposed  of  those  pro- 
ceedings, and  contended  that  all  his  estate,  rights  and  interests  of  every 
kind  and  description,  had  passed  from  the  control  of  the  Circuit  Court 
of  Barbour  County  and  into  the  jurisdiction  of  the  District  Court.  On 
November  18,  1899,  a  trustee  in  bankruptcy  was  appointed  for  Pickens' 
estate,  who  in  February,  1900,  presented  to  the  Circuit  Court  of  Bar- 
bour County  his  petition  in  the  chancery  cause,  asking  that  he  be  made 
a  party,  that  his  petition  stand  as  an  answer,  and  that  the  Circuit  Court 
proceed  to  the  enforcement  of  the  liens  against  the  bankrupt's  estate; 
and,  thereafter,  on  February  23,  1900,  that  court  rendered  a  decree  by 
which,  among  other  things,  it  was  ordered  that  the  deed  of  trust  referred 
to  in  the  bill  be  set  aside  as  fraudulent  and  that  a  special  commissioner 
and  receiver  therein  named  should  rent  the  land  described  until  a 
certain  day  and  then  sell  the  same,  the  proceeds  thereof  to  be  applied 
to  the  payment  of  the  debts  due  by  Pickens.  November  20,  1899, 
complainant  Dent  (Roy),  "  without  waiving  her  preference,"  tendered 
her  proof  of  debt  before  the  referee  in  bankruptcy,  it  being  the  judg- 
ment in  question,  which  was  allowed  as  a  preferred  claim  against  the 
bankrupt's  estate. 

The  receiver  and  commissioner  appointed  in  the  chancery  court  was 
proceeding  to  execute  the  decree  therein  when  Pickens  filed  his  bill  in 
the  District  Court  March  31,  1900,  against  Dent  (Roy)  and  others, 
rehearsing  the  facts  relating  to  the  suit  and  to  the  proceedings  in  bank- 
ruptc}',  charging  that  the  trustee  was  not  authorized  to  intervene  in  the 
chancery  cause,  and  asserting  that  the  State  court  on  the  filing  of  Pick- 
ens'  answer  setting  up  his  adjudication  should  have  taken  no  further 
action,  and  that,  therefore,  the  decree  appointing  the  commissioner  and 


SECT.  III.]  PICKENS  V.   ROY.  383 

receiver  to  rent  and  sell  the  real  estate  was  without  authority  of  law 
and  void.  , 

The  praj*er  was  that  defendants  be  restrained  from  all  further  pro- 
ceedings in  the  suit  so  pending  in  the  Circuit  Court  of  Barbour  County 
until  the  termination  of  the  bankruptc}T  proceedings ;  that  the  receiver 
and  commissioner  be  enjoined  from  executing  the  decree  during  their 
pendency  ;  and  that  the  possession  and  control  of  the  property  be  turned 
over  to  the  trustee  to  be  administered  under  the  direction  of  the  court 
in  bankruptcy. 

A  preliminary  injunction  was  granted  by  the  district  judge,  which 
was  dissolved  July  26,  1900,  and  Pickens'  bill  dismissed  with  costs. 
From  that  decree  this  appeal  was  taken. 

Such  being  the  state  of  facts,  the  Circuit  Court  of  Appeals  held  that 
the  District  Court  had  no  jurisdiction  of  the  suit,  even  if  it  had  been 
brought  in  the  name  of  the  trustee,  who  could  not  have  sued  defend- 
ants below  in  that  court  in  respect  of  the  bankrupt's  propeity,  unless  by 
consent,  while  the  bankrupt  himself  had  no  standing  in  that  court  after 
adjudication,  Bardes  v.  Hawarden  Bank,  178  U.  S.  524  ;  and  further, 
that  as  the  Circuit  Court  of  Barbour  County  had  at  the  time  of  the  ad- 
judication, and  had  had  for  years,  complete  jurisdiction  and  control  over 
the  bankrupt  and  his  property,  that  jurisdiction  was  not  divested  by  the 
proceedings  in  bankruptc}',  and  it  was  the  right  and  duty  of  that  court 
to  proceed  to  final  decree  notwithstanding  adjudication,  the  rule  being 
applicable  that  the  court  which  first  obtains  rightful  jurisdiction  over 
the  subject  matter  should  not  be  interfered  with.  Frazier  v.  Southern 
Loan  and  Trust  Company,  99  Fed.  Rep.  707.  And  Goff,  J.,  speaking 
for  the  court,  said:  "The  bankrupt  act  of  1898  does  not  in  the  least 
modify  this  rule,  but  with  unusual  carefulness  guards  it  in  all  of  its 
detail,  provided  the  suit  pending  in  the  State  court  was  instituted  more 
than  four  months  before  the  District  Court  of  the  United  States  had 
adjudicated  the  bankruptcy  of  the  party  entitled  to  or  interested  in  the 
subject  matter  of  such  controversy."1 

The  court  also  ruled  that  the  mere  fact  that  complainant  Dent  (Roy) 
proved  up  her  judgment  as  a  preferred  debt  in  bankruptcy,  when,  and 
as  she  did,  did  not  operate  to  deprive  the  State  court  of  jurisdiction,  nor 
amount  to  a  consent  to  the  exercise  of  jurisdiction  by  the  District  Court 
as  invoked. 

We  are  of  opinion  that  the  Circuit  Court  of  Appeals  was  right  in  its 
rulings.  The  case  in  the  one  aspect  came  within  Bardes  v.  Hawarden 
Bank,  and  in  the  other  within  the  rule  applied.  Metcalf  v.  Barker, 
187  U.  S.  165.  Decree  affirmed. 

1  In  Bank  of  Andrews  v.  Gndger,  212  Fed.  49  (C.  C.  A.),  the  Bankruptcy  Court  was 
held  entitled  to  take  property  from  a  receiver  appointed  by  a  state  court  at  the  in- 
stance of  stockholders  more  than  four  months  before  the  bankruptcy ;  "  for  creditors 
were  not  before  the  State  court  and  had  not  acquired  any  lien  on  the  property." 
The  court  relied  on  Re  Watts,  190  U.  S.  1.  Cf.  Blick  v.  Nimmo,  121  Md.  139. 


384  CLAKKE  V.  LARREMOKE.  [CHAP.  V. 


CLARKE  v.  LARREMOKE. 

SUPREME  COURT  OF  THE  UNITED  STATES,  DECEMBER  15, 1902-FEBRUARY 

23,  1903 

[Reported  in  188  United  States,  486.] 

Ox  January  23,  1899,  the  petitioner,  the  owner  of  certain  notes  of 
Raymond  W.  Kenney,  commenced  an  action  thereon  in  the  Supreme 
Court  of  the  State  of  New  York.  On  March  6,  1899,  he  recovered 
judgment  for  the  sum  of  $20,906.66.  An  execution,  issued  thereon, 
was  by  the  sheriff  of  the  county  of  New  York  levied  upon  a  stock  of 
goods  and  fixtures  belonging  to  Kenney.  A  sheriff's  sale  thereof,  had 
on  March  15,  1899,  realized  $12/451.09.  Shortly  after  the  levy  of  the 
execution  Leon  Abbett  sued  out  in  the  same  court  a  writ  of  attachment 
against  the  property  of  Kenne}',  and  caused  it  to  be  levied  upon  the 
same  stock  and  fixtures.  Immediately  thereafter,  claiming  that  the 
debt  in  judgment  was  a  fraudulent  one,  he  commenced  in  aid  of  his 
attachment  an  injunction  suit  to  prevent  the  further  enforcement  of 
the  judgment,  and  obtained  a  temporary  order  restraining  the  sheriff 
from  paying  petitioner  the  money  received  upon  the  execution  sale. 
Upon  a  hearing  the  Supreme  Court  decided  that  the  debt  was  just  and 
honest,  and  on  April  13,  1899,  set  aside  the  restraining  order.  On  the 
same  day,  and  before  the  sheriff  had  returned  the  execution  or  paid  the 
money  collected  on  it,  a  petition  in  involuntary  bankruptcy  against 
Kenney  was  filed  in  the  United  States  District  Court  for  the  Southern 
District  of  New  York,  and  an  order  made  b}'  the  district  judge  restrain- 
ing the  sheriff  from  pa}'ing  the  money  to  Clarke,  the  execution  creditor. 
95  Fed.  Rep.  427.  Kenney  was  thereafter  adjudged  a  bankrupt,  and 
on  November  25,  1899,  the  plaintiff  having  been  appointed  trustee  in 
bankruptcy,  the  district  judge  entered  a  further  order  directing  the 
sheriff  to  pay  the  money  to  the  trustee.  97  Fed.  Rep.  555.  On  re- 
view the  United  States  Circuit  Court  of  Appeals  for  the  Second  Circuit 
affirmed  these  orders  of  the  district  judge,  105  Fed.  Rep.  897,  and 
thereupon  a  certiorari  was  granted  by  this  court.  180  U.  S.  640. 

Mr.  S.  Livingston  Samuels  for  appellant. 

Mr.  Nelson  S.  Spencer  for  appellee. 

Mr.  Justice  BREWER,  after  making  the  foregoing  statement,  de- 
livered the  opinion  of  the  court. 

The  contention  of  the  petitioner  is  that  — 

"  The  sheriff  having  sold  the  goods  levied  on  before  the  filing  of  the 
petition  in  bankruptc\*,  the  proceeds  of  the  sale  were  the  property  of 
the  plaintiff  in  execution,  and  not  of  the  bankrupt,  at  the  time  of  the 
adjudication,  and  the  trustee,  therefore,  has  no  title  to  the  same." 

This  contention  cannot  be  sustained.  The  judgment  in  favor  of 
petitioner  against  Kenney  was  not  like  that  in  Metcalf  v.  BarKer, 
187  U.  S.  165,  one  giving  effect  to  a  lien  theretofore  existing,  but  one 


SECT,  m.]  CLARKE   V.   LARREMORE.  385 

which  with  the  levy  of  an  execution  issued  thereon  created  the  lien ; 
and  as  judgment,  execution  and  levy  were  all  within  four  months  prior 
to  the  filing  of  the  petition  in  bankruptcy,  the  lien  created  thereby  be- 
came null  and  void  on  the  adjudication  of  bankruptcy.  This  nullity 
and  invalidity  relate  back  to  the  time  of  the  entry  of  the  judgment  and 
affect  that  and  all  subsequent  proceedings.  The  language  of  the 
statute  is  not  "  when  "  but  "  in  case  he  is  adjudged  a  bankrupt,"  and 
the  lien  obtained  through  these  legal  proceedings  was  by  the  adjudica- 
tion rendered  null  and  void  from  its  inception.  Further,  the  statute 
provides  that  "  the  property  affected  by "  —  not  the  property  subject 
to  —  the  lien  is  wholly  discharged  and  released  therefrom.  It  is  true 
that  the  stock  and  fixtures,  the  property  originally  belonging  to  the 
bankrupt,  had  been  sold,  but  having,  so  far  as  the  record  shows,  passed 
to  a  "bona  fide  purchaser  for  value,"  it  remained  by  virtue  of  the  last 
clause  of  the  section  the  property  of  the  purchaser,  unaffected  by  the 
bankruptcy  proceedings.  But  the  money  received  by  the  sheriff  took 
the  place  of  that  property. 

It  is  said  that  that  money  was  not  the  property  of  the  bankrupt  but  of 
the  creditor  in  the  execution.  Doubtless  as  between  the  judgment  cred- 
itor and  debtor,  and  while  the  execution  remained  in  force,  the  money 
could  not  be  considered  the  property  of  the  debtor,  and  could  not  be 
appropriated  to  the  payment  of  his  debts  as  against  the  rights  of  the 
judgment  creditor,  but  it  had  not  become  the  property  absolutely  of 
the  creditor.  The  writ  of  execution  had  not  been  fully  executed.  Its 
command  to  the  sheriff  was  to  seize  the  property  of  the  judgment 
debtor,  sell  it  and  pa}'  the  proceeds  over  to  the  creditor.  The  time 
within  which  that  was  to  be  done  had  not  elapsed,  and  the  execution 
was  still  in  his  hands  not  fully  executed.  The  rights  of  the  creditor 
were  still  subject  to  interception.  Suppose,  for  instance,  there  being 
no  bankruptcy  proceedings,  the  judgment  had  been  reversed  by  an 
appellate  court  and  the  mandate  of  reversal  filed  in  the  trial  court, 
could  it  for  a  moment  be  claimed  that,  notwithstanding  the  reversal  of 
the  judgment  the  money  in  the  hands  of  the  sheriff  belonged  to  the 
judgment  creditor,  and  could  be  recovered  by  him,  or  that  it  was  the 
duty  of  the  sheriff  to  pay  it  to  him?  The  purchaser  at  the  sheriff's 
sale  might  keep  possession  of  the  property  which  he  had  purchased, 
but  the  money  received  as  the  proceeds  of  such  sale  would  undoubtedly 
belong  and  be  paid  over  to  the  judgment  debtor.  The  bankruptcy  pro- 
ceedings operated  in  the  same  way.  The}'  took  away  the  foundation 
upon  which  the  rights  of  the  creditor,  obtained  by  judgment,  execution, 
levy  and  sale,  rested.  The  duty  of  the  sheriff  to  pay  the  money  over 
to  the  judgment  creditor  was  gone  and  that  money  became  the  prop- 
erty of  the  bankrupt,  and  was  subject  to  the  control  of  his  representa- 
tive in  bankruptcy. 

It  was  held  in  Turner  u.  Fendall,  1  Cranch,  117,  that  money  col- 
lected by  a  sheriff  on  an  execution  could  not  be  levied  upon  under 
execution  placed  in  his  hands  against  the  judgment  creditor,  and  that 


386  CLARKE  V.  LARREMORE.  [CHAP.  V. 

the  latter  could  maintain  an  action  against  the  sheriff  for  a  failure  to 
pay  the  money  thus  collected.  A  similar  ruling  was  made  in  New 
York,  Baker  v.  Kenworthy,  41  N.  Y.  215,  in  which  it  appeared  that  a 
sheriff  had  collected  money  on  an  execution  in  favor  of  one  Brooks ; 
that  he  returned  the  execution  without  paying  the  money  to  Brooks, 
but  on  the  contrary  levied  upon  it  under  an  execution  against 
Brooks,  and  it  was  held  that  such  levy  did  not  release  him  from 
liabilit}7  to  Brooks.  It  was  said  in  the  opinion  (p.  216)  : 

"The  money  paid  into  the  hands  of  the  sheriff  on  the  execution  in 
favor  of  Brooks  did  not  become  the  property  of  Brooks  until  it  had 
been  paid  over  to  him.  Until  that  was  done,  the  sheriff  could  not  levy 
upon  it  by  virtue  of  the  execution  against  Brooks  then  in  his  hands." 

The  rule  in  that  State  in  respect  to  a  levy  upon  money  in  the  hands 
of  a  sheriff  may  have  been  changed  —  at  least  so  far  as  an  attachment 
is  concerned.  See  Wehle  v.  Conner,  83  N.  Y.  231. 

In  Nelson  v.  Kerr,  59  N.  Y.  224,  it  is  said :  "  The  mone}7  collected 
b}7  the  sheriff  belongs  to  the  plaintiff. "  But  in  that  case  the  execution 
had  been  returned,  and  yet  the  officer  had  not  paid  the  money  to  the 
execution  creditor.  See  also  Kingston  Bank  v.  Eltinge,  40  N.  Y.  391. 

In  none  of  those  cases  had  anything  been  done  to  affect  the  validity 
or  force  of  the  writ  of  execution.  Whatever  was  done  was  done  under 
a  writ  whose  validity  and  potency  were  unchallenged  and  undisturbed, 
while  here,  before  the  writ  of  execution  had  been  fully  executed,  its 
power  was  taken  away.  Its  command  had  ceased  to  be  obligatory 
upon  the  sheriff,  and  the  execution  creditor  had  no  right  to  insist  that 
the  sheriff  should  further  execute  its  commands. 

A  different  question  might  have  arisen  if  the  writ  had  been  fully 
executed  by  payment  to  the  execution  creditor.  Whether  the  bank- 
ruptcy proceedings  would  then  so  far  affect  the  judgment  and  execution, 
and  that  which  was  done  under  them,  as  to  justify  a  recovery  by  the 
trustee  in  bankruptcy  .from  the  execution  creditor,  is  a  question  not 
before  us,  and  may  depend  on  many  other  considerations.  It  is  enough 
now  to  hold  that  the  bankruptcy  proceedings  seized  upon  the  writ  of 
execution  while  it  was  still  unexecuted  and  released  the  property  which 
was  held  under  it  from  the  claim  of  the  execution  creditor. 

The  judgment  of  the  Court  of  Appeals  is  Affirmed. 

Mr.  Justice  WHITE  and  Mr.  Justice  PECKHAM  dissented.1 

1  If  the  proceeds  of  an  execution  are  paid  over  to  the  creditor,  the  transaction  is  not 
invalidated  by  section  67/".  The  trustee  in  bankruptcy's  right,  if  he  has  any,  must 
be  asserted  by  a  plenary  suit  under  section  60.  Re  Bailey,  144  Fed.  214;  Re  Resnek, 
167  Fed.  574;  Levor  v.  Seiter,  69  N.  Y.  App.  Div.  33. 

The  destruction  of  liens  by  legal  proceedings  is  not  only  for  the  benefit  of  the  trustee, 
but  also  for  the  benefit  of  the  bankrupt  himself  and  therefore  an  attachment,  made 
within  four  months,  of  exempt  property  is  dissolved.  Rock  Island  Plow  Co.  v.  Reardon, 
222  U.  S.  354. 


SECT.  IV.]  CARPENTER  V.    MARNELL.  387  / 


SECTION  IV.  ;, 

DIFFERENT  KINDS  OF  PROPERTY. 

CARPENTER  AND  OTHERS  v.  MARNELL. 
COMMON  PLEAS,  HILARY  TERM,  1802. 

[Reported  in  3  Bosanquet  and  Puller,  40.] 

ASSUMPSIT  on  a  note  in  these  words :  "I  promise  to 
JoseplL_Eowler  or_ordgr_the  sum  of  £150,  being  the  remainder  of  the 
consideration  for  the  assignment  of  his  interest  in  the  Layton  business 
to  me,  as  soon  as  I  shall  receive  or  may  receive  the  money  due  upon 
the  completion  of  the  said  business  from  T.  B.  Esquire,  his  executors, 
administrators,  or  assigns,  or  immediately  upon  my  receiving  letters  of 
administration  of  the  estate  and  effects  of  Lieutenant-General  Joseph 
Walton,  otherwise  Brome,  deceased,  whichever  event  shall  first  take 
place.  Signed  "  Richard  Marnell."  This  note  was  indorsed  by  Fowler 
to_one.  jL^Bagatgr  for  a  valuable  consideration,  after  which  Fowler  be- 
came bankrupt  and  the  plaintiffs  were  chosen  his  assignees  ;  in 
capacity_they  now  sued  for  the  benefit  of  Bagster.  -  TV\JP  AXV^ 

The  cause  was  tried  before  Lord  ALVANLEY,  C.  J.,  at  the  Westmin- 
ster Sittings  after  Michaelmas  Term,  and  a  verdict  was  found  for  the 
plaintiffs  subject  to  the  opinion  of  the  court  whether  the  action  was 
maintainable  by  them  as  assignees  of  Fowler. 

A  rule  nisi  having  been  obtained  on  a  former  day  for  setting  aside 
the  verdict,  and  entering  a  nonsuit, 

Best  and  Otislow,  Serjts.,  now  showed  cause. 

/Shepherd,  Serjt.,  contra. 

LORD  ALVANLEY  C.  J.  We  are  all  of  opinion  that  this  action  ought 
to  have  been  brought  by  Fowler.  He  was  the  person  to  whom  the 
promise  to  pay  was  made  ;  he  by  his  indorsement  directed  the  contents  ( 
of  the  note  to  be  paid  to  Bagster,  and  though  this  indorsement  had  no 
legal  effect,  yet  it  passed  the  beneficial  interest  in  the  note  to  Bagster, 
and  Fowler  by  the  indorsement  became  a  mere  trustee  for  him.  The 
assignees  never  were  in  a  situation  to  derive  any  benefit  from  this 
piece  of  paper.  If  indeed  they  had  possessed  the  most  remote  pos- 
sibility of  interest,  or  if  they  could  state  anything  from  which  a  bene- 
fit to  the  creditors  would  result,  I  should  hold  that  the  action  might 
be  maintained  ;  but  at  the  time  when  they  brought  this  action  it  was 
impossible  for  them  not  to  know  that  they  had  no  right  to  the  note. 
They  bring  the  action  in  the  character  of  trustees  ;  but  they  are  not 
trustees  for  Bagster ;  they  are  only  trustees  for  Fowler's  creditors,  and 
therefore  cannot  sustain  this  action. 

HEATH,  ROOKE,  and  CHAMBRE,  JJ.,  concurred.  Ride  absolute.1 

1  Winch  v.  Keeley,  1  T.  R.  619 ;  Gladstone  v.  Hadwen,  1  M.  &  S.  517  ;  Dangerfield 
v.  Thomas,  9  A.  &  E.  292;  Ex  parte  Gennys,  Mont.  &  McA.  258;  De  Mattos  v.  Saun- 


388 


YEATMAN   V.   SAVINGS   INSTITUTION.  [CHAP.  V. 


lybtte*^ 

"fo>  ALUtfJU 
^OV*i*4+^~\ 

-VJ&"-          . 

p&  uX^r1^. 

&tW#r£JM 

*^Xi/^«* 

cjutt|xx^^  / 

^.  J/^wW 

I 

**4^u*  C 
/<UrvcA^^-°-    • 

ll&ii*, 


YEATMAN  v.  SAVINGS   INSTITUTION. 

UNITED  STATES  SUPREME  COURT,  OCTOBER  TERM,   1877. 

[Reported  in  95   United  States,  764.] 

ERROR  to  the  Circuit  Court  of  the  United  States  for  the  District  of 
Louisiana. 

.*'-  ^n  ^ne  ^^  °^  «J"uly>  1871,  O'Fallon  &  Hatch,  a  firm  doing  business 
at  St.  Louis,  delivered,  in  pledge,  to  the  New  Orleans  Savftigs  Institu- 
tion, ft  corporation  created  by  the  laws  of  Louisiana,  having  its  place 
of  business  in  New  Orleans,  two  certificates  of  indebtedness  issued  by 
that  State,  each  for  the  sum  of  $5,000,  to  secure  the  payment  of  a 
promissory  note  of  the  firm  for  $5,000,  dated  July  21,  1871,  made  pay- 
able to  its  own  order  on  the  21st  of  January,  1872,  and  by  it  indorsed 
in  blank.  It  is  conceded  that  the  corporation  acquired  the  note  and 
the  certificates  of  indebtedness,  in  due  course  of  business,  and  for  a 
valuable  consideration.  ThB^"nrm  and  the  individuals  composing  it 
were,  November  27,  1871,  adjudged  bankrupts  by  the  District  Court 
of  the  United  States  for  the  Eastern  District  of  Missouri ;  and,  upon 
the  application  of  creditors,  a  receiver  of  the  estate  and  effects  of  the 
bankrupts  was,  by  an  ex  parte  order,  appointed,  with  authority  to 
demand  and  receive  all  property  of  every  kind  and  description  belong- 
ing to  them. 

An  assignee  in  bankruptcy  was  afterwards  appointed,  to  whom  was 
conveyed,  in  the  prescribed  mode,  all  the  real  and  personal  estate  of 
the  bankrupts.  First  the  receiver,  and  subsequently  the  assignee,  each 
claiming  to  act  under  the  authority  of  that  court,  demanded  of  the  cor- 
poration, in  the  city  of  New  Orleans,  the  surrender  of  the  certificates. 
That  demand,  repeated  more  than  once,  and  accompanied  by  copies  of 
the  orders  of  that  court,  was  uniformly  met  with  a  refusal  to  surrender 
them,  except  upon  the  payment  of  the  note  for  which  they  had  been 
pledged.  The  corporation,  by  its  president,  expressed  its  willingness 
to  surrender  them,  or  have  them  sold,  if  an  amount  sufficient  to  pay 
the  note  was  left  in  New  Orleans,  with  the  agent  of  the  receiver  and  as- 
signee, until  proof  of  its  debt  should  be  made  in  the  bankruptcy  court. 
Neither  the  receiver  nor  the  assignee  assented  to  such  an  arrangement, 

ders,  L.  R.  7  C.  P.  570;  Pratt  v.  Wheeler,  6  Gray,  520 ;  Faxon  v.  Folvey,  110  Mass. 
392;  Holmes  v.  Winchester,  133  Mass.  140;  Low  v.  Welch,  139  Mass.  33;  Ontario 
Bank  v.  Mumford,  2  Barb.  Ch.  596  ;  Kip  v.  Bank  of  New  York,  10  Johns.  63 ;  Swep- 
Bon  v.  Rouse,  55  N.  C.  34 ;  Lndwig  v.  Highley,  5  Pa.  St.  132 ;  Blin  v.  Pierce,  20  Vt. 
25  ace.;  and  see  Ames  Cas.  Trusts,  392  and  note. 


SECT.  IV.]  YEATMAN   V.    SAVINGS    INSTITUTION.  389 

but  insisted  upon  the  right  to  the  actual  custody  of  the  certificates 
pending  the  proceedings  in  bankruptcy.  The  assignee,  upon  one  occa- 
sion, authorized  the  president  of  the  corpoi-ation  to  sell  them,  at  not 
less  than  sixtj'-eight  cents  on  the  dollar,  and  retain  the  proceeds,  with- 
out prejudice  to  the  rights  of  either  party,  until  the  claim  of  the  institu- 
tion should  be  proven  before  a  register  in  bankruptcy,  and  allowed. 
But  a  sale  could  not  be  made  at  that  limit,  and  the  authority  to  sell 
was  withdrawn. 

The  corporation  did  not  become  a  party  to  the  proceedings  in  bank- 
ruptcj7  by  proving  its  debt,  or  in  an}'  other  mode. 

This  action  by  the  assignee  in  bankruptc}-,  to  recover  of  the  corpora- 
tiojn  the  value  of  the  certificates,  was  based  upon  the  ground  that,  lay 
'its  refbsatTcTsurrender  possession  of  them,  it  had  converted  them  to 
its  own  use,  and  become  liable  therefor. 

The  corporation  insisted  that,  having  obtained  the  certificates  in  due 
course  of  business,  and  for  a  valuable  consideration,  it  was  entitled  to 
hold  them  until  the  note  should  be  fully  paid. 

There  was  a  finding  in  favor  of  the  corporation  ;  and,  judgment  hav- 
ing been  rendered  thereon,  Yeatman  sued  out  this  writ  of  error. 

Mr.  Given  Campbell,  for  the  plaintiff  in  error. 

Mr.  Thomas  Allen  Clarke,  for  the  defendant  in  error. 

Mr.  Justice  HARLAN  delivered  the  opinion  of  the  court. 

Counsel  for  the  plaintiff  in  error  has  raised  numerous  questions  for 
our  consideration,  which,  under  the  view  we  take  of  the  case,  it  is  not 
necessary  to  determine.     The  sole  question  which,  under  the  pleadings,  • 
it  seems  essential  to  decide,  is,  whether  the  savings  institution,  by  its  J 
refusal  to  surrender  the  certificates,  can  be  held  to  have  converted  them 
to  its  own  use. 

.  We  are  of  opinion  that  this  question  must  receive  a  negative  answer. 
The  savings  institution,  by  virtue'  of  the  pledge,  acquired  a  special 
property  in  the  certificates,  and,  until  the  payment  of  the  note  for 
$5,000,  was  not  bound  to  return  them  either  to  the  bankrupt,  the 
receiver,  or  the  assignee  in  bankruptcy.  Such  are,  beyond  doubt,  its  ,V  .  -' 
rights  at  common  law,  as  well  as  under  the  Code  of  Louisiana,  which 
declares  that  "  the  creditor  who  is  in  possession  of  the  pledge  can  only 
be  compelled  to  return  it  when  he  has  received  the  whole  payment 
of  the  principal  as  well  as  the  interest  and  costs."  Rev.  Code  La., 
§  3,164. 

These  rights  were  not  affected  by  any  of  the  provisions  of  the  bank- 
rupt law.  The  established  rule  is,  that,  except  in  cases  of  attachments 


^».,      W      >,_.>,_.....«...•• -^        .~.~,      v^^     -«.P.fe..v-^      v^,.^.^      v,.~     .,.u.v,     OM.yv,v«    W      ,      ,      u 

all  equities,  liens,  or  incumbranCG5~,  whether  created  by  operation  ~oT 
law  or  by  act  of  the  bankrupt,  which  existed  against  the  property  in 
the  hands  of  the  bankrupt.  Brown  v.  Ileathcote,  1  Atk.  160  ;  Mitchell  u. 


390 


YEATMAN   V.    SAVINGS   INSTITUTION. 


[CHAP.  v. 


Winslow,.2  Story,  630  ;  Gibson  v.  Warder,  14  Wall.  244  ;  Cook  v.  Tul- 
lis,  18  Wall.  332  ;  Donaldson,  Assignee,  v.  Farwell  et  aL,  93  U.  S.  631 ; 
Jerome  v.  McCarter,  94  U.  S.  734.  He  takes  the  property  in  the 
same  "  plight  and  condition  "  that  the  bankrupt  held  it.  Winsor  v. 
McLellan,  2  Story,  492.  In  Goddard  v.  Weaver,  1  Wood,  260,  it  was 
well  said  that  the  assignee  "  takes  only  the  bankrupt's  interest  in  prop- 
erty. He  has  no  right  or  title  to  the  interest  which  other  parties  have 
therein,  nor  any  control  over  the  same,  further  than  is  expressly  given 
to  him  by  the  Bankrupt  Act,  as  auxiliary  to  the  preservation  of  the 
bankrupt  estate  for  the  benefit  of  his  creditors.  It  would  be  absurd  to 
contend  that  the  assignee  in  bankruptcj'  became  ipso  facto  seised  and 
possessed  in  entirety,  as  trustee,  of  every  article  of  property  in  which 
the  bankrupt  has  any  interest  or  share." 

These  views  find  direct  support  in  more  than  one  provision  of  the 
Bankrupt  Act.  Among  the  rights  which  vest  at  once  in  the  assignee 
bv  virtue  of  the  adjudication  in  bankruptcy,  and  of  his  appointment 
as  such  assignee,  is  the  right  to  redeem  the  property  or  estate  of  the 
bankrupt.  Act  of  1867,  §  14.;  Rev.  Stat.,  §  5,046.  And,  in  order 
that  it  may  be  exercised  for  the  benefit  of  creditors,  the  assignee  is 
given  express  authority,  "  under  the  order  and  direction  of  the  court, 
to  redeem  and  discharge  any  mortgage  or  conditional  contract,  or  pledge, 
or  deposit,  or  lien  upon  any  propert}',  real  or  personal,  whenever  pay- 
able, and  to  tender  due  performance  of  the  condition  thereof,  or  to 
sell  the  same  subject  to  such  mortgage,  lien,  or  other  incumbrance." 
Act  of  1867,  §  14;  Rev.  Stat.,  §  5,066.  This  is  a  distinct  recogni- 
tion of  the  rights  of  the  pledgee  as  against  the  assignee.  Of  course, 
where  the  pledge  is  in  fraud  of  the  bankrupt  law,  and  consequently 
void,  the  assignee  ma}'  disregard  the  contract  of  pledge,  and  recover 
the  property  for  the  benefit  of  creditors.  Not  so  where  the  pledge,  as 
in  this  case,  was  made  in  good  faith,  for  a  valuable  consideration,  and 
not  in  violation  of  the  provisions  of  the  bankrupt  law. 

The  savings  institution,  therefore,  incurred  no  liability  by  its  refusal 
to  surrender  the  certificates  upon  the  demand  of  the  receiver  or  the 
assignee.  Such  refusal  affords  no  evidence  of  a  conversion  of  them  to 
its  use. 

Nor  was  its  right  to  hold  them  impaired  by  its  failure  to  appear  in 
the  bankruptcy  court,  or  its  refusal  to  prove  its  debt,  in  the  customary 
form,  against  the  estate  of  the  bankrupts.  The  only  effect  of  such 
refusal  was  to  lose  the  privilege  of  participating  in  such  distribution  of 
the  estate  as  might  be  ordered  by  that  court.  It  had  the  right  to  forego 
that  advantage,  and  look  for  ultimate  security  wholly  to  the  certificates 
which  it  held  under  a  valid  pledge.  If  the  assignee  regarded  them  as 
of  greater  value  than  the  debt  for  which  the}7  had  been  pledged,  or  if 
the  interest  of  the  creditors  required  prompt  action,  he  had  authority, 
under  the  statute  and  the  orders  of  the  court,  to  tender  performance  of 
the  contract  of  pledge,  or  to  discharge  the  debt  for  which  the  certifi- 
cates were  held.  He  had  the  right,  perhaps,  under  the  orders  of  the 


SECT.  IV.]  NUTTER   V.   WHEELER.  391 

court,  to  sell  them,  subject  to  the  claim  of  the  defendant  in  error.  If 
he  desired  a  sale  of  them,  and  a  distribution  of  the  proceeds,  or  if  he 
doubted  the  validity  of  the  pledge,  he  could  have  instituted  an  action 
against  the  corporation  in  some  court  of  competent  jurisdiction  in  Lou- 
isiana, and  thereby  obtained  a  judicial  determination  of  the  rights  of  the 
parties.  But  none  of  these  obvious  modes  of  proceeding  were  -adopted. 
The  receiver  and  assignee  seem  to  have  acted  throughout  upon  the 
theorj'-  that  the}1  had  the  right,  immediately  upon  and  by  virtue  of  the 
adjudication  in  bankruptcy,  to  assume  control  of  all  property  of  every 
kind  and  description,  wherever  held,  in  which  the  bankrupt  had  an  in- 
terest, without  reference  either  to  the  just  possession  of  others,  lawfully 
acquired,  prior  to  the  commencement  of  proceedings  in  bankruptcy,  or 
to  the  liens,  incumbrances,  or  equities  which  existed  against  the  prop- 
erty at  the  time  of  the  adjudication  in  bankruptcy.  "We  have  seen  that 
such  a  theory  is  unsupported  by  law. 

The  conclusions  we  have  announced  render  it  unnecessary  to  consider 
any  other  questions  raised  in  the  case. 

Judgment  affirmed.* 


T.  F.  NUTTER  v.  J.  S.  WHEELER  ET  AL. 

DISTRICT  COURT  FOR  THE  DISTRICT  OP  MASSACHUSETTS, 
NOVEMBER,  1874. 

[Reported  in  2  Lowell,  346.] 

ACTION  of  contract  by  the  assignee  in  bankruptcy  of  A.  S.  Gear  to  '}  ^ 

recover  $627,  alleged  to  have  been  received  by  the  defendants  to  the 
use  of  the  plaintiff.  The  case  was,  by  consent,  tried  by  the  court  with- 
out a  jury.  The  facts,  as  found  by  the  judge,  were  these :  — 

The  defendants  were  manufacturers  of  machinists'  tools  at  Worcester, 
and  Gear  had  a  shop  in  Boston,  where  he  sold  such  tools,  among  other   > 
things.     The  defendants  were  in  the  habit  of  sending  their  manufac-      Q 
tured  goods  to  Gear,  and  he  sold  them  at  such  prices  and  to  such  per-  ~Y  i^ 
sons  and  on  such  terras  as  he  pleased,  not  less  than  the  trade  prices   ( 
fixed  by  the  defendants  ;  whenever  he  had  sold  any  tools,  and  not  be-  *\A  ( 
fore,  he  was  to  pay  the  defendants,  in  thirty  days,  the  prices  shown  in  (jn 
the  list,  less  an  agreed  discount.     The  defendants  had  the  right  to  sell  7 
any  goods  which  at  any  time  remained  in  his  shop  unsold,  and  he  was  r 
permitted  to  sell  any  of  their  goods  at  the  factory,  and  the  defendants 
would  then  deliver  them  according  to  his  order,  and  charge  him  with  /    ^_^ 
the  trade  price  less  the  discount.     Instead  of  paying  in  thirty  days, 

JAX'V     f    I 


1  Jerome  v.  McCarter,  94  U.  S.  734;  Stewart  v.  Platt,  101  U.  S.  738;  Hauselt  v. 
Harrison,  105  U.  S.  401;  Re  Buntrock  Clothing  Co.,  92  Fed.  Rep.  886;  Crowe  v. 
Reid,  57  Ala.  281  ;  Hall  v.  Bliss,  118  Mass.  554;  Dayton  Nat.  Bank  v.  Merchant*' 
Nat.  Bank,  37  Ohio  St.  208,  ace.  But  see  Re  Cobb,  96  Fed.  Rep.  821. 

/-).*.          >       ,  t  .     .  ^,      oY>_    xJ<-^^<^e<. 

KU4- 


392  NUTTEK   V.   WHEELER.  [CHAP.  V. 

Gear  would  sometimes  give  his  note  for  the  balance  due ;  and  the  de- 
fendants held  one  such  note  at  the  time  of  the  bankruptcy. 

In  December,  1873,  Gear  ordered  three  drills  to  be  sent  by  the  de- 
fendants, from  their  factory  at  Worcester,  to  the  New  York  Central 
Railroad  Company,  at  three  different  machine  shops  of  that  company, 
in  the  State  of  New  York.  They  were  sent,  and  a  bill  was  made  out 
to  Gear,  as  the  purchaser,  for  the  trade  price  of  $600,  less  fifteen  per 
cent,  and  sent  him  in  a  letter,  in  which  the  defendants  say  they  had 
taken  off  fifteen  per  cent,  and  hope  to  get  the  cash  in  thirty  days. 

In  January,  1874,  Gear  failed,  and  the  defendants  took  back  the 
tools  of  their  manufacture  then  in  the  shop  in  Boston,  unsold.  In  Feb- 
ruary, 1874,  Gear  went  into  bankruptcy,  and  at  the  first  meeting  of 
creditors  the  defendants  proved  against  his  estate  for  the  amount  of 
his  note,  above  mentioned,  and  for  the  price  of  the  three  drills.  J.  S. 
Wheeler,  one  of  the  defendants,  was  chosen  assignee.  Finding  that 
the  railroad  company  had  not  paid  Gear  for  the  drills,  the  defendants 
collected  the  price,  giving  to  the  company  the  receipt  of  J.  S.  Wheeler, 
the  assignee.  Wheeler  afterwards  resigned  his  trust  as  assignee.  This 
suit  was  brought  by  the  successor  of  Wheeler,  as  assignee,  against  the 
firm  of  J.  S.  Wheeler  &  Co.,  for  money  had  and  received.  The  defend- 
ants filed  a  petition  to  amend  their  proof,  as  having  been  made  by  mis- 
take of  fact  and  law. 

E.  Avery  <&  T.  F.  Nutter,  for  the  plaintiff. 

N~.  Morse  &  A.  Jones,  for  the  defendant. 

LOWELL,  J.  It  has  been  settled  for  a  very  long  time  that,  upon  the 
bankruptcy  of  a  factor,  his  principal  may  recover  from  the  assignees 
any  of  the  goods  remaining  unsold,  or  any  proceeds  of  the  sale  of  such 
goods  which  the  assignees  themselves  have  received,  or  which  remain 
specifically  distinguishable  from  the  mass  of  the  bankrupt's  property. 
The  action  may  be  brought  at  law  as  well  as  in  equity,  subject,  of 
course,  to  the  factor's  lien  for  advances  or  commissions  :  Scott  v.  Sur- 
man,  Willes,  400  ;  Ex  parte  Chion,  3  P.  Wms.  187  n. ;  Kelly  v.  Mun- 
son,  7  Mass.  319  ;  Tooke  v.  Hollingworth,  5  T.  R.  215 ;  and  it  makes 
no  difference  that  the  factor  acted  under  a  del  credere  commission,  or 
sold  the  goods  in  his  own  name  :  Thompson  v.  Perkins,  3  Mason,  232  ; 
Barry  v.  Page,  10  Gray,  398  ;  Audenried  v.  Betteley,  8  Allen,  302. 

A  like  doctrine  is  applied  to  bankers  who,  if  they  have  received 
notes  or  bills  from  their  customers  and  have  not  discounted  them,  will 
not  usually  be  held  to  have  acquired  the  property  in  them  ;  and  if  the 
banker  becomes  bankrupt,  his  assignees  are  liable  to  the  customer  for 
the  bills,  or  their  distinguishable  proceeds,  subject  to  the  lien  for  ad- 
vances :  Thompson  v.  Giles,  2  B.  &  C.  422  ;  Ex  parte  Barkworth,  2 
DeGex  &  J.  194  ;  Stetson  u.  Exch.  Bank,  7  Gray,  425.1 

The  important  question,  therefore,  in  this  case  is,  whether  the  de- 
fendants and  Gear  stood  in  the  positions,  respectively,  of  principal  and 
agent  in  this  transaction  of  the  sale  of  three  drills.  Upon  the  first 

1  See  Ames'  Gas.  Trusts,  9-21,  for  many  cases  illustrating  this  principle. 


SECT.  IV.]  NUTTER  V.  WHEELER.  393 

view  of  the  correspondence  and  the  acts  of  the  parties,  it  appears  a 
simple  case  of  sale  to  Gear  of  goods  delivered  to  a  third  person  at  his 
request.  And  the  defendants  found  some  difficulty  in  stating  their 
case  in  such  a  way  as  to  take  it  out  of  this  category.  In  their  applica- 
tion to  withdraw  this  part  of  their  proof  in  bankruptcy,  they  say  it 
ought  to  have  been  put,  not  as  a  sale,  but  as  a  consignment  or  deliver}- 
of  the  drills  to  Gear,  or  his  order,  for  sale  by  him  on  their  account,  on 
commission.  It  was  not  a  consignment,  certain!}-,  and  Gear  never  for 
an  instant  had  the  possession  or  property,  general  or  special,  of  the 
goods. 

The  defendants,  however,  appeal  to  the  course  of  business  between 
the  parties  to  prove  that  it  was  a  sale  on  commission.  The  bankrupt 
and  the  defendants,  being  examined  as  witnesses,  disagreed  about  the 
conversation  which  took  place  at  the  beginning  of  the  business  connec- 
tion between  them ;  but  the  very  voluminous  correspondence  shows 
clearly  enough  what  the  actual  mode  of  dealing  was.  And  it  is  plain 
that  the  goods  sent  to  Boston  by  the  defendants,  from  time  to  time, 
remained  their  property  until  they  were  sold,  and  that  when  a  sale 
occurred  Gear  became  immediately  the  debtor  at  a  fixed  price,  and 
was  bound  to  pay  at  a  definite  time,  and  that  he  never  consulted  with 
them  about  terms  or  purchasers,  or  anything  else,  except  the  variations 
of  the  trade  price ;  never  accounted  to  them  or  was  expected  to  ac- 
count as  agent,  or  was  subject  to  their  directions,  excepting  as  to  the 
tools  remaining  in  his  hands  undisposed  of.  As  to  those  goods  sent 
to  Boston,  he  may  be  described  as  a  bailee,  having  power  to  sell  as 
principal.  Until  a  sale  was  made,  the  property  in  the  goods  remained 
in  the  defendants,  and  they  were  well  justified  in  reclaiming  those 
which  remained  on  hand  at  the  time  of  the  failure  of  Gear. 

But  after  the  goods  were  sold,  the  agreement  appears  to  have  been 
that  Gear's  credit  only  was  looked  to.  Perhaps  there  were  conven- 
iences in  this  mode  of  conducting  the  business.  Whatever  profit  or 
loss  Gear  might  make,  or  whatever  credit  he  might  give,  the  defend- 
ants had  a  fixed  price  and  a  fixed  time  of  payment.  He  never  con- 
sulted them  about  his  sales,  or  rendered  any  account  of  sales.  The 
prohibition  against  selling  below  the  trade  price  is  a  very  common 
one  between  a  manufacturer  and  those  who  buy  of  him  to  sell  again, 
and  is  intended  to  prevent  a  ruinous  competition  between  sellers  of  the 
same  article.  I  have  often  known  this  arrangement  to  be  made  by  a 
patentee  and  his  various  licensees.  It  has  but  little  tendency  to  prove 
agency. 

The  question  of  agency  is  mooted  usually  either  between  the  princi- 
pal and  the  third  person,  or  between  that  person  and  the  supposed 
agent ;  but  the  real  inquiry  in  all  the  cases  is,  whether  the  credit  was 
given  to  the  person  sought  to  be  charged  by  the  person  seeking  to 
charge  him.  Thus,  when  the  defendants  were  suing  the  railroad  com- 
pany, the  liability  depended  on  the  fact  of  credit  having  been  given 
them  by  the  defendants,  either  directly  or  through  their  agent  Gear. 


394  NUTTER   V.   WHEELER.  [CHAP.  V. 

The  terms  of  the  sale  by  Gear  to  the  company  were  not  proved,  but  it 
was  taken  for  granted  by  both  parties  that  he  sold  as  a  principal ;  and 
that  this  was  so,  is  shown  by  the  fact  that  the  company  insisted  upon 
the  receipt  of  his  assignee. 

I  will  now  examine  some  adjudged  cases.  Where  a  trader,  having  a 
contract  with  government  to  supply  a  large  amount  of  candles,  asked 
a  friend,  who  had  candles  of  the  required  quality,  to  accommodate  him 
with  some,  which  the  friend  assented  to,  provided  the  bills  should  be 
made  out  in  his  name  ;  and  the  trader  delivered  the  candles  (as  the 
court  inferred)  in  his  own  name,  and  his  assignees  in  bankruptcy  re- 
ceived the  price  ;  it  was  held  they  must  pay  it  in  full  to  the  owner  of 
the  candles ;  Ex  parte  Carlon,  4  Dea.  &  Ch.  120.  But  it  was  taken 
for  granted  by  the  judges  that  if  the  owner  had  intended  to  trust  the 
trader's  credit,  he  could  not  have  intervened  after  the  bankruptcy,  but 
must  have  proved  against  the  assets  as  for  goods  sold. 

So,  in  the  cases  about  bankers,  it  has  been  said  that  if  the  agreement 
were  that  the  bills  should  be  the  property  of  the  banker,  then,  what- 
ever might  be  the  hardship  of  the  particular  case,  his  assignee  in  bank- 
ruptcy could  hold  them.  See  remarks  of  Eldon,  L.  C.,  in  Ex  parte 
Sergeant,  1  Rose,  153,  explained  in  Ex  parte  Barkworth,  2  DeGex  & 
J.  194. 

The  late  English  case,  Ex  parte  White,  L.  R.  6  Ch.  397,  is  on  all 
fours  with  this.  With  a  change  of  names,  the  course  of  dealing  de- 
scribed in  that  case  would  do  for  this,  in  respect  to  the  goods  sent  to 
Gear  and  sold  by  him  in  Boston  ;  and  the  precise  question  came  up, 
whether,  after  the  goods  had  been  sold,  the  bankrupt  was  to  account  as 
agent.  The  court  decided  that  the  agency  continued  only  up  to  the 
time  of  selling  the  goods ;  and  when  they  were  sold,  the  bankrupt  him- 
self became  the  purchaser,  as  between  him  or  his  assignees  in  bank- 
ruptcy and  the  consignor  of  the  goods.  The  learned  justices  say  that 
this  mode  of  conducting  business  is  a  usual  one,  of  great  convenience 
to  the  parties,  and  they  carefully  and  ably  distinguish  the  contract  from 
one  of  a  sale  by  an  agent,  even  with  a  del  credere  commission.  That 
case  was  to  be  taken  to  the  House  of  Lords,  but  I  cannot  find  that  it 
has  been  decided  there.  Whatever  may  be  its  fate  in  that  court,  I  con- 
sider the  decision  of  the  lords  justices  a  sound  one. 

The  case  of  Audenried  v.  Betteley,  8  Allen,  302,  has  been  cited  by 
the  defendants.  There  the  plaintiffs  agreed  to  ' '  stock  "  the  wharf  of 
the  bankrupt  with  coal  and  wood,  and  the  bankrupt  was  to  make  sales 
at  prices  fixed  by  the  plaintiffs.  He  agreed  to  carry  on  no  other  busi- 
ness ;  to  keep  books  which  should  always  be  open  to  the  inspection  of 
the  plaintiffs ;  to  guarantee  the  sales  ;  to  account  monthly,  etc.  The 
contract  was  evidently  drawn  with  a  view  to  keep  the  whole  business 
under  the  plaintiffs'  control,  without  making  them  liable  for  the  debts 
of  the  bankrupt ;  and  in  providing  for  these  objects  it  ran  some  risk  of 
making  the  bankrupt  a  mere  purchaser.  But  the  court  held  that  he  was 
an  agent.  That  case  differs  from  the  case  at  bar  as  much  as  the  English 


SECT.  IV.]  IN  RE   MOSES.  395 

case  resembles  it.  Here  none  of  the  circumstances  are  found  from 
which  an  agency  was  there  inferred.  Gear  did  not  render  an  account 
of  sales ;  did  not  agree  to  guarantee  sales,  nor  to  keep  books,  nor  to 
sell  at  prices  to  be  fixed  by  the  defendants,  excepting  as  to  the  mini- 
mum, which  has  been  already  explained. 

If  the  relation  of  the  parties  was  such  as  I  have  considered  it,  then, 
even  as  to  the  goods  which  had  once  been  consigned  to  Gear,  he  should 
be  considered  as  the  purchaser,  subject  only  to  the  understanding  that 
he  was  neither  the  owner  of  them,  nor  liable  to  pay  for  them  until  he 
had  succeeded  in  finding  a  purchaser ;  but  when  he  did  sell  he  immedi- 
ately became  the  principal,  and  the  defendants  ceased  to  have  the  rights 
of  a  consignor,  and  could  not  follow  the  goods  or  their  proceeds  as  un- 
disclosed principals. 

If  this  is  so,  then  the  transaction  now  under  review,  which,  standing 
alone,  appears  to  be  a  sale  to  Gear  himself,  and  not  a  sale  through 
him  as  agent,  is  not  shown  to  be  anything  else  by  the  course  of  trade 
between  the  parties.  But  even  if  the  goods  which  had  once  been  con- 
signed to  Gear  should  be  held  to  be  sold  by  him  as  agent  or  factor,  I 
doubt  if  such  sales  as  this  could  be  so  considered. 

The  defendants,  then,  have  collected  money  which  belonged  to  the 
estate  of  Gear.  They  collected  it  by  action  ;  but  as  they  had  no  right 
to  collect  it,  they  cannot  deduct  the  expenses,  unless  the}^  would  have 
been  necessary  and  proper  costs  of  a  recovery  by  the  assignee  if  he  had 
brought  the  action.  In  the  settlement  with  the  railroad  company  they 
were  obliged  to  give  the  receipt  of  one  of  the  firm  as  assignee,  and 
there  is  no  evidence  that  he  could  not  have  had  the  money  in  the  first 
instance  upon  such  a  receipt.  The  expenses,  therefore,  were  incurred 
in  their  own  wrong.  They  must  pay  to  the  present  assignee  the  price 
the  railroad  gave  for  the  drills,  which  I  understand  to  be  $610. 

Judgment  for  the  plaintiff". 


IN  THE  MATTER  OF  SIMON  MOSES. 

DISTRICT  COURT  FOR  THE  SOUTHERN  DISTRICT  OF  NEW  YORK, 
MARCH  4,  1880. 

[Reported  in  1  Federal  Reporter,  845.] 

CHOATE,  J.  This  is  an  application  on  the  part  of  creditors  of  the 
bankrupt,  by  petition,  to  compel  the  bankrupt  to  deliver  to  the  assignee 
certain  moneys  and  property  alleged  to  be  in  his  possession  at  the  time 
of  filing  his  petition  in  bankruptcy  and  not  delivered  to  his  assignee. 
The  bankrupt  has  answered,  denying  that  he  had  any  such  money  or 
property  ;  but  he  now  objects  to  any  further  proceedings,  and  moves  to 
dismiss  the  petition  on  the  ground  that,  upon  the  case  as  stated  in  the 


396  IN  RE  MOSES.  [CHAP.  v. 

petition,  the  assignee  in  bankruptcy  has  no  title  or  claim  to  the  prop- 
erty, but  that,  if  the  bankrupt  still  holds  it,  it  belongs  to  his  assignee 
under  a  voluntary  assignment  for  the  benefit  of  creditors,  executed 
before  the  filing  of  the  petition  in  bankruptcy. 

The  case  made  by  the  petition  is  shortly  this :  The  general  assign- 
ment for  the  benefit  of  creditors  was  executed  December  19,  1877. 
The  petition  in  bankruptcy  was  filed  June  27,  1878.  At  and  prior  to 
the  making  of  the  general  assignment,  the  bankrupt  had  a  large  amount 
of  money  and  personal  property,  which,  with  the  knowledge  and  conni- 
vance of  his  voluntary  assignee,  and  to  defraud  his  creditors,  he  was 
permitted  to  use  as  his  own  in  continuing  his  business.  That  part  of 
his  property,  if  any,  which  he  did  deliver  to  the  voluntar}-  assignee  was 
delivered  in  form  onl}*,  and  really  remained  subject  to  the  control  and 
use  of  the  bankrupt  in  his  business,  the  assignee  permitting  the  money  to 
be  deposited  in  a  bank  account  opened  in  his  name  as  assignee,  and  to 
be  drawn  out  b}*  or  for  the  use  of  the  bankrupt,  and  for  the  bankrupt's 
own  business  purposes.  The  bank  account  of  the  assignee  was,  on  the 
case  made,  a  mere  blind  for  creditors. 

This  state  of  things  continued  till  the  assignee  died,  having  rendered 
no  account,  and  having  to  his  credit  in  the  bank  only  about  $500.  A 
new  assignee  has,  since  his  death,  been  appointed  by  the  court  having 
jurisdiction  of  the  trust,  on  the  application  of  the  present  petitioners. 
The  monej's  and  property  now  alleged  to  be  in  the  hands  of  the  bank- 
rupt are  the  proceeds  and  result  of  the  business  so  carried  on,  or,  per- 
haps, partly  the  very  money  which  the  bankrupt  failed  to  deliver  to  his 
voluntary  assignee. 

Upon  this  case  I  am  clearly  of  opinion,  if  the  facts  shall  be  estab- 
lished by  the  evidence,  that  the  bankrupt  should  be  compelled  to  pay 
over  and  deliver  the  money  and  property  to  the  assignee  in  bankruptcy. 
Whatever  money  or  property  is  in  the  possession  of  the  bankrupt  at  the 
time  of  filing  his  petition,  which  he  is  actually  using  and  holding  as  his 
own,  passes  to  his  assignee  in  bankruptc}',  and  he  cannot  set  up  in 
defence  to  the  claim  of  the  assignee  a  title  in  a  third  person,  merely 
for  the  purpose  of  holding  it  himself.  If  third  persons  have  the  pos- 
session, this  court  cannot,  on  summaiy  petition,  order  it  to  be  delivered 
to  the  assignee.  But  if  the  bankrupt  has  it,  it  passes  to  the  assignee, 
subject  to  the  liens  or  rights  of  third  persons,  whatever  they  may  be. 
After  the  assignee  gets  the  property,  any  third  person  may,  by  petition 
or  suit,  assert  his  rights  in  it.1 

1  The  court  here  quoted  from  In  re  Beal,  2  N.  B.  R.  587.  See  also  Re  Kurtz,  125 
Fed.  992  ;  Lord  v.  Seymour,  85  N.  Y.  App.  Div.  617,  affd.  177  N.  Y.  525. 


SECT.  IV.] 


THOMPSON   V.   FAIRBANKS. 


397 


THOMPSON  v.   FAIRBANKS. 

SUPKEME  COURT  OF  THE  UNITED  STATES,  JANUARY  6- 
FEBRUARY  20,  1905. 

[Reported  in  196  United  States,  516.] 

MR.  JUSTICE  PECKHAM  delivered  the  opinion  of  the  court. 

This  is  a  contest  between  a  trustee  in  bankruptcy  representing  the 


creditors  of  the  bankrupt,  and  the  defendant,  the  mortgagee  in  a  chat- 
tel mortgage  dated  and  executed  April  15,  1891,  and  duly  recorded 
April  18  of  that  year.  The  defendant  has  paid  some  $500  of  the  in- 
debtedness of  the  bankrupt  for  which  defendant  was  liable  as  indorser 
on  a  note,  and  he  remains  liable  to  pay  the  note  of  $2,510.75,  held  by 
the  Passumpsic  Savings  Bank,  which  was  signed  by  him  as  surety. 

The  propert}'  taken  possession  of  by  the  defendant  under  the  chattel 
mortgage  was  sold  by  a  deputy  sheriff  on  the  eleventh  of  June,  1900, 
and  the  net  avails  of  the  sale,  amounting  to  $922.08,  have  been  paid 
over  by  the  officer  who  made  the  sale,  to  the  defendant. 

This  suit  is  brought  by  the  trustee  to  recover  from  the  defendant 
those  net  avails  on  the  theory  that  the  action  of  the  defendant  in  taking 
possession  and  making  the  sale  of  the  property  was  unlawful  under  the 
provisions  of  the  bankrupt  act. 

The  defendant  had  assisted  the  bankrupt  in  the  purchase  of  the  prop- 
erty and  had  indorsed  notes  for  him  in  order  to  enable  him  to  carry  on 
the  business  of  conducting  a  livery  stable.  This  mortgage,  to  secure 
him  for  these  paj'ments  and  liabilities,  was  given  some  seven  years  be- 
fore the  passage  of  the  bankrupt  act,  and  at  the  time  it  was  given  it  was 
agreed  by  the  parties  to  it  that  the  bankrupt  might  sell  or  exchange  any 
of  the  livery  stock  covered  by  it  as  he  might  desire,  and  should  by  pur- 
chase or  exchange  keep  the  stock  good,  so  that  the  defendant's  security 
should  not  be  impaired,  and  it  was  also  agreed  that  all  after- acquired 
livery  property  should  be  covered  by  the  mortgage  as  security  for  the 
debts  specified  therein. 

Under  this  agreement  the  bankrupt  made  sales,  purchases,  and  ex- 
changes of  livery  stock  to  such  an  extent  that  on  May  16,  1900,  there 
retimined  but  two  horses  of  the  property  originally  on  hand.  The  stock 
as  it  existed  on  the  above  date  was  all  acquired  b}-  exchange  of  the 
original  stock,  or  with  the  avails  of  the  old  stock  sold,  or  the  money 
derived  from  the  business.  There  is  no  pretence  of  any  actual  fraud 
being  committed  or  contemplated  by  either  party  to  the  mortgage.  In- 
stead of  taking  possession  at  the  time  of  the  execution  of  the  mortgage, 
the  defendant  had  it  recorded  in  the  proper  clerk's  office,  and  the  record 
stood  as  notice  to  all  the  world  of  the  existence  of  the  lien  as  it  stood 
when  the  mortgage  was  executed,  and  that  the  defendant  would  have 
the  right  to  take  possession  of  property  subsequently  acquired  as  pro- 
vided for  in  the  mortgage.  The  Bankrupt  was,  therefore,  uot  holding 


398  THOMPSON   V.    FAIRBANKS.  [CHAP.  V. 

himself  out  as  unconditional  owner  of  the  property,  and  there  was  no 
securing  of  credit  by  reason  of  his  apparent  unconditional  ownership. 
The  record  gave  notice  that  he  was  not  such  unconditional  owner. 
There  was  no  secret  lien,  and  if  defendant  cannot  secure  the  benefit  of 
this  mortgage,  which  he  obtained  in  1891,  as  a  lien  upon  the  after- 
acquired  propert}*,  }-et  prior  to  the  title  of  the  trustee  for  the  benefit  of 
creditors,  it  must  be  because  of  some  provision  of  the  bankruptc}'  law, 
which  we  think  the  court  ought  not  to  construe  or  endeavor  to  enforce 
beyond  its  fair  meaning. 

In  Vermont  it  is  held  that  a  mortgage,  such  as  the  one  in  question, 
i?  good.  The  Supreme  Court  of  that  State  has  so  held  in  this  case, 
and  the  authorities  to  that  effect  are  also  cited  in  the  opinion  of  that 
court.  And  it  is  also  there  held  that  when  the  mortgagee  takes  posses- 
sion of  after-acquired  propert}*,  as  provided  for  in  this  mortgage,  the 
lien  is  good  and  valid  as  against  every  one  but  attaching  or  judgment 
creditors  prior  to  the  taking  of  such  possession. 

At  the  time  when  the  defendant  took  possession  of  this  after-acquired 
property,  covered  by  the  mortgage,  there  had  been  a  breach  of  the  con- 
dition specified  therein,  and  the  title  to  the  property  was  thereby  vested 
in  the  mortgagee,  subject  to  the  mortgagor's  right  in  equit}1  to  redeem. 
This  has  been  held  to  be  the  law  in  Vermont  (aside  from  an}-  question 
as  to  the  effect  of  the  bankrupt  law),  both  in  this  case  and  in  the  cases 
also  cited  in  the  opinion  of  the  Supreme  Court  of  Vermont.  The  taking 
of  possession  of  the  after-acquired  property,  under  a  mortgage  such  as 
this,  is  held  good,  and  to  relate  back  to  the  date  of  the  mortgage,  even 
as  against  an  assignee  in  insolvency.  Peabody  v.  Landon,  61  Vermont, 
318,  and  other  cases  cited  in  the  opinion  of  the  Supreme  Court. 

Whether  and  to  what  extent  a  mortgage  of  this  kind  is  valid,  is  a 
local  question,  and  the  decisions  of  the  State  court  will  be  followed  by 
this  court  in  such  case.  Dooley  v.  Pease,  180  U.  S.  126. 

The  question  that  remains  is,  whether  the  taking  of  possession  after 
condition  broken,  of  these  mortgaged  chattels  before,  and  within  four 
months  of  filing  the  petition  in  bankruptc}*,  was  a  violation  of  any  of 
the  provisions  of  the  bankrupt  act? 

The  trustee  insists  that  such  taking  possession  of  the  after-acquired 
property,  under  the  mortgage  of  1891,  constituted  a  preference  under 
that  act.  He  contends  that  the  defendant  did  not  have  a  valid  lien 
against  creditors,  under  that  act ;  that  his  lien  might  under  other  cir- 
cumstances have  been  consummated  by  the  taking  of  possession,  but 
as  that  was  done  within  four  months  of  the  filing  of  the  petition  in 
bankruptcy,  the  lien  was  not  valid. 

Did  this  taking  of  possession  constitute  a  preference  within  the  mean- 
ing of  the  act  ? 

It  was  found  b}'  the  referee  that  when  the  defendant  took  possession 
of  the  property  he  knew  that  the  mortgagor  was  insolvent  and  was  con- 
sidering going  into  bankruptcy,  but  that  he  did  not  intend  to  perpetrate 
any  actual  fraud  on  the  other  creditors,  or  any  of  them,  but  did  intend 


SECT.  IV.]  THOMPSON   V.  FAIKBANKS.  399 

thereby  to  perfect  his  lien  on  the  property,  and  make  it  available  for 
the  payment  of  his  debts  before  other  complications,  by  way  of  attach- 
ment or  bankruptcy  arose.  He  then  understood  that  RyanVattachment 
would  probably  hold  good  against  his  mortgage.  The  question  whether 
any  conveyance,  etc.,  was  in  fact  made  with  intent  to  defraud  creditors, 
when  passed  upon  in  the  State  court,  is  not  one  of  a  Federal  nature. 
McKenna  v.  Simpson,  129  U.  S.  506  ;  Cramer  v.  Wilson,  195  U.  S. 
408.  It  can  scarcely  be  said  that  the  enforcement  of  a  lien  by  the 
taking  possession,  with  the  consent  of  the  mortgagor,  of  after-acquired 
property  covered  by  a  valid  mortgage  is  a  conveyance  or  transfer  within 
the  bankrupt  act.  There  is  no  finding  that  in  parting  with  the  posses- 
sion of  the  property  the  mortgagor  had  any  purpose  of  hindering,  delay- 
ing, or  defrauding  his  creditors,  or  any  of  them.  Without  a  finding  to 
the  effect  that  there  was  an  intent  to  defraud,  there  was  no  invalid 
transfer  of  the  property  within  the  provisions  of  section  67  e  of  the 
bankruptcy  law.  Sabin  v.  Camp,  98  Fed.  Rep.  974. 

In  the  case  last  cited  the  court,  upon  the  subject  of  a  preference,  held 
that  though  the  transaction  was  consummated  within  the  four  months, 
yet  it  originated  in  October,  1897,  and  there  was  no  preference  under 
the  facts  of  that  case.  "  What  was  done  was  in  pursuance  of  the  pre- 
existing contract,  to  which  no  objection  is  made.  Camp  furnished  the 
money  out  of  which  the  property,  which  is  the  subject  of  the  sale  to  him, 
was  created.  He  had  good  right,  in  equity  and  in  law,  to  make  pro- 
vision for  the  security  of  the  money  so  advanced,  and  the  property 
purchased  b}-  his  money  is  a  legitimate  security,  and  one  frequently 
employed.  There  is  always  a  strong  equity  in  favor  of  a  lien  b}*  one 
who  advances  money  upon  the  property  which  is  the  product  of  the 
money  so  advanced.  This  was  what  the  parties  intended  at  the  time, 
and  to  this,  as  already  stated,  there  is,  and  can  be,  no  objection  in  law 
or  in  morals.  And  when,  at  a  later  date,  but  still  prior  to  the  filing  of 
the  petition  in  bankruptcy,  Camp  exercised  his  rights  under  this  valid 
and  equitable  arrangement  to  possess  himself  of  the  property  and  make 
sale  of  it  in  pursuance  of  his  contract,  he  was  not  guilty  of  securing  a 
preference  under  the  bankruptcy  law. 

The  principle  that  the  taking  possession  may  sometimes  be  held  to 
relate  back  to  the  time  when  the  right  so  to  do  was  created,  is  recog- 
nized in  the  above  case.  So  in  this  case,  although  there  was  no  actual 
existing  lien  upon  this  after-acquired  property  until  the  taking  of  pos- 
session, yet  there  was  a  positive  agreement,  as  contained  in  the  mort- 
gage and  existing  of  record,  under  which  the  inchoate  lien  might  be 
asserted  and  enforced,  and  when  enforced  by  the  taking  of  possession, 
that  possession  under  the  facts  of  this  case,  related  back  to  the  time  of 
the  execution  of  the  mortgage  of  April,  1891,  as  it  was  only  by  virtue 
of  that  mortgage  that  possession  could  be  taken.  The  Supreme  Court 
of  Vermont  has  held  that  such  a  mortgage  gives  an  existing  lien  by 
contract,  which  may  be  enforced  by  the  actual  taking  of  possession, 
and  such  lien  can  only  be  avoided  by  an  execution  or  attachment  cred- 


400  THOMPSON   V.   FAIRBANKS.  [CHAP.  V. 

itor,  whose  lien  actually  attaches  before  the  taking  of  possession  by  the 
mortgagee.  Although  this  after-acquired  property  was  subject  to  the 
lien  of  an  attaching  or  an  execution  creditor,  if  perfected  before  the  mort- 
gagee took  possession  under  his  mortgage,  yet  if  there  were  no  such 
creditor,  the  enforcement  of  the  lien  by  taking  possession  would  be 
legal,  even  if  within  the  four  months  provided  in  the  act.  The're  is  a 
distinction  between  the  bald  creation  of  a  lien  within  the  four  months, 
and  the  enforcement  of  one  provided  for  in  a  mortgage  executed  years 
before  the  passage  of  the  act,  by  virtue  of  which  mortgage  and  because 
of  the  condition  broken,  the  title  to  the  propert\r  becomes  vested  in  the 
mortgagee,  and  the  subsequent  taking  possession  becomes  valid,  except 
as  above  stated.  A  trustee  in  bankruptcy  does  not  in  such  circum- 
stances occupy  the  same  position  as  a  creditor  levying  under  an  execu- 
tion, or  by  attachment,  and  his  rights,  in  this  exceptional  case,  and  for 
the  reasons  just  indicated,  are  somewhat  different  from  what  they  are 
generally  stated.  Mueller  v.  Nugent,  184  U.  S.  1. 

It  is  admitted  on  the  part  of  the  counsel  for  the  plaintiff  in  error 
that  the  rule  in  Vermont,  in  cases  of  chattel  mortgages  of  after-acquired 
propert}*  (where  possession  by  the  mortgagee  is  necessaiy  to  perfect  his 
title  as  against  attaching  or  execution  creditors),  is  that  although  such 
possession  be  not  taken  until  long  after  the  execution  of  the  mortgage, 
(&*d  yet  the  possession,  when  taken  (if  it  be  before  the  lien  ofjthe  attaching 
or  execution  creditor),  brings  the  property  under  the  cover  and  opera- 
tion of  the  mortgage  as  of  its  date  —  the  time  when  the  right  of  posses- 
sion was  first  acquired.  It  was  also  admitted  that  the  Supreme  Court 
of  Vermont  has  held  that  when  a  chattel  mortgage  requiring  possession 
of  the  mortgaged  property,  to  perfect  it  as  to  third  persons,  was  executed 
more  than  four  months  before  the  commencement  of  insolvency  pro- 
ceedings, the  taking  of  actual  possession  of  the  mortgaged  property 
within  the  four  months'  period  brought  that  property  under  the  mortgage 
as  of  its  date,  and  so  did  not  constitute  a  preference  voidable  by  the 
trustee,  although  the  other  elements  constituting  a  preference  were 
present.  Many  decisions  of  the  Supreme  Court  of  Vermont  are  cited 
to  this  effect.  It  will  be  observed,  also,  that  the  provisions  of  the  State 
insolvency  law  in  regard  to  void  and  voidable  preferences  and  transfers 
were  identical  with  similar  provisions  of  the  bankruptcy  act  of  1867. 
Gilbert  v.  Vail,  60  Vermont,  261. 

Under  that  law  it  was  held  that  the  assignee  in  bankruptc}'  stood  in 
the  shoes  of  the  bankrupt,  and  that  "  except  where,  within  a  prescribed 
period  before  the  commencement  of  proceedings  in  bankruptcy,  an  at- 
tachment has  been  sued  out  against  the  property  of  the  bankrupt,  or 
where  his  disposition  of  his  property  was,  under  the  statute,  fraudulent 
and  void,  his  assignees  take  his  real  and  personal  estate,  subject  to  all 
equities,  liens,  and  encumbrances  thereon,  whether  created  b}-  his  act 
or  by  operation  of  law.  Yeatman  v.  Savings  Institution,  95  U.  S.  764. 
See  also  Stewart  v.  Platt,  101  U.  S.  731;  Hauselt  v.  Harrison,  105 
U.  S.  401.  Under  the  present  bankrupt  act,  the  trustee  takes  the  prop- 


SECT.  IV.]  THOMPSON   V.   FAIKBANKS.  401 

erty  of  the  bankrupt,  in  cases  unaffected  by  fraud,  in  the  same  plight  . ' 
and  condition  that  the  bankrupt  himself  held  it,  and  subject  to  all  the 
equities  impressed  upon  it  in  the  hands  of  the  bankrupt,  except  in  cases 
where  there  has  been  a  conveyance  or  encumbrance  of  the  property 
which  is  void  as  against  the  trustee  by  some  positive  provision  of  .the 
act.  In  re  Garcewich,  115  Fed.  Rep.  87,  89,  and  cases  cited. 

It  is  true  that  in  the  case  in  95  U.  S.  764,  the  savings  institution  had 
a  special  property  in  the  certificates  which  were  the  subject  of  dispute, 
and  had  possession  of  them  at  the  time  of  the  bankruptcy  proceedings, 
and  it  was  held  that  the  institution  was  not  bound  to  return  them,  either 
to  the  bankrupt,  the  receiver  or  the  assignee  in  bankruptcy,  prior  to 
the  time  of  the  payment  of  the  debt  for  which  the  certificate  was  held. 
So  the  State  court  held  in  this  case,  where  the  defendant  took  posses- 
sion under  the  circumstances  detailed,  by  virtue  of  his  mortgage,  and 
where  he  had  the  legal  title  to  the  property  mortgaged,  after  condition 
broken,  that  the  possession  thus  taken  related  back  to  the  date  of  the 
giving  of  the  mortgage,  and  in  thus  enforcing  his  lien  there  was  not  a 
violation  of  any  of  the  provisions  of  the  bankruptcy  act. 

In  Wilson  v.  Nelson,  183  U.  S.  191,  it  was  held  that  the  bankrupt 
had  committed  an  act  of  bankruptc}*,  within  the  meaning  of  the  bank- 
rupt law,  by  failing,  for  at  least  five  days  before  a  sale  on  the  execution 
issued  upon  the  judgment  recovered,  to  vacate  or  discharge  the  judg- 
ment, or  to  file  a  voluntar}7  petition  in  bankruptcy.  The  judgment  and 
execution  were  held  to  have  been  such  a  preference,  "suffered  or  per- 
mitted" by  the  bankrupt,  as  to  amount  to  a  violation  of  the  bankrupt 
act.  Although  the  judgment  was  entered  upon  the  power  of  attorney 
given  years  before  the  passage  of  the  bankrupt  act,  it  was  nevertheless 
regarded  as  "suffering  or  permitting"  a  preference,  within  that  act. 
This  is  not  such  a  case.  As  we  have  said,  there  is  no  finding  that  the 
defendant  had  reasonable  cause  to  believe  that  by  the  change  of  posses- 
sion it  was  intended  to  give  a  preference.  As  the  State  court  has  said, 
it  was  rather  a  recognition  of  what  was  regarded  as  a  right  under  the 
previous  agreement  contained  in  the  mortgage. 

We  think  the  judgment  of  the  Supreme  Court  of  Vermont  was  right, 
and  it  is  Affirmed.1 

1  A  portion  of  the  opinion  relating  to  certain  special  facts  which  were  held  irrelevant 
is  omitted. 

In  Humphrey  v.  Tatman,  198  U.  S.  91,  the  court  reached  the  same  result  as  to  a 
Massachusetts  mortgage,  reversing  the  decision  of  Tatman  v.  Humphrey,  184  Mass. 
361. 


J 

402  HASKELL   V.   MEKRILL.  [CHAP.  V. 


FREDERIC  F.    HASKELL,  TRUSTEE,  v.  JOSEPH  F.  MERRILL 

&   OTHERS. 


SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  MARCH  20-MAY  23, 

[Reported  1)1  179  Massachusetts,  120.] 

HOLMES,  C.  J.  This  is  a  bill  by  a  trustee  in  bankruptcy  to  recover 
property  alleged  to  belong  to  the  bankrupt's  estate.  The  case  was  sent 
to  a  master,  and  exceptions  were  taken  by  the  defendant  Hodge  to  his 
report.  These  were  overruled,  and  no  appeal  was  taken.  Afterwards 
the  report  was  accepted  and  a  decree  was  entered  for  the  plaintiff. 
From  this  final  decree  an  appeal  was  taken.  The  only  question  before 
us  is  whether  the  decree  was  warranted  on  the  pleadings  and  report. 

The  only  property  concerned  under  the  master's  report  is  machinery 
found  to  have  been  transferred  by  a  bill  of  sale  to  the  defendant  Hodge 
as  security  for  advances.  The  instrument  seems  not  to  have  been  re- 
corded, and  the  master  finds  in  terms  that  there  never  was  any  delivery 
of  possession.  An  exception  taken  to  this  finding  is  less  frivolous  than 
^^  the  others,  since  earlier  in  the  report  it  is  stated  that  after  giving  the 
security  the  bankrupt  paid  monthly  rent  for  the  use  of  it.  We  assume 
for  the  purposes  of  decision  that  the  form  of  such  a  paj'ment  would 
have  been  evidence  of  a  sufficient  change  of  possession.  Moors  v. 
Wyman,  146  Mass.  60,  63,  and  there  may  be  some  ground  for  appre- 
hending that  the  master  adopted  a  different  view.  But  we  cannot  say 
that  the  fact  that  the  form  of  paying  rent  was  gone  through  conclu- 
sively establishes  the  change.  Harlow  v.  Hall,  132  Mass.  232.  It 
should  be  mentioned,  too,  that  a  part  of  the  machinery  at  least  seems 
not  to  be  the  same  as  that  covered  by  the  mortgage. 

Coming,  then,  to  the  question  whether  the  report  justifies  the  decree, 
it  follows  that  Hodge  has  no  title  as  against  the  plaintiff.  St.  1883, 
c.  73  ;  Chick  v.  Nute,  176  Mass.  57  ;  Bingham  v.  Jordan,  1  Allen, 
373.  It  is  true  that  under  the  last  bankrupt  act  it  looked  a  little  as  if 
property  situated  like  this  might  be  at  a  loss  for  a  master.  For  while 
this  court  denied  it  to  the  mortgagee  the  United  States  courts  denied 
it  to  the  assignee  in  bankruptcy.  Winsor  v.  McLellan,  2  Story,  492; 
Ex  parte  Dalby,  1  Lowell,  431;  Coggeshall  v.  Potter,  Holmes,  75; 
Stewart  v.  Platt,  101  U.  S.  731,  738,  739.  The  ground  of  the  United 
States  decisions  was  that  the  assignee  is  the  bankrupt.  Lowell,  Bank- 
ruptcy, §  309.  And  no  doubt  it  is  traditional  to  regard  such  assignees 
as  universal  successors  who  like  executors  or  other  universal  successors 
represent  the  person  of  him  to  whom  they  succeed.  Chipman  v.  Man- 
ufacturers' National  Bank,  156  Mass.  147,  149;  Phosphate  Sewage 
Co.  v.  Molleson,  5  Ct,  of  Sess.  Cas.  (4th  Ser.)  1125,  1138.  Neverthe- 
less in  Bingham  v.  Jordan  the  statute  was  held  to  invalidate  the  mort- 
gage as  against  assignees  in  insolvency;  and  this  amounted  to  a 
decision  that  a  fictitious  identity  of  person  did  not  satisfy  the  words  of 


SECT.  IV.]      YORK   MANUFACTURING   COMPANY   V.    CASSELL.  403 

our  statute  which  make  the  mortgage  void  "  against  any  person  other 
than  the  parties  thereto."  The  view  taken  by  Judge  Lowell  was  al- 
most directly  contradictory  to  this  decision,  which  was  that  an  assignee 
in  insolvency  was  not  a  "  party  thereto." 

The  construction  of  a  State  statute  is  a  matter  upon  which  the  deci- 
sion of  the  State  court  is  final.  If  the  only  ground  on  which  the  right 
of  the  assignee  to  property  subject  to  an  unrecorded  mortgage  is  that 
given  by  Judge  Lowell,  in  Lowell,  Bankruptcy,  §  309,  the  answer  is 
that  the  United  States  courts  are  not  at  liberty  to  say  that  an  assignee 
is  a  party  to  a  mortgage  given  by  his  bankrupt  when  this  court  has 
said  that  he  is  not.  But  it  seems  to  be  unnecessary  to  discuss  that 
question,  because  in  Ex  parte  Dalb}",  1  Lowell,  431,  433,  it  is  admitted 
tbat  there  is  a  distinction  when  the  assignee  takes  all  that  could  have 
been  taken  on  execution  against  the  bankrupt  at  the  time  of  the  bank- 
ruptcy. Under  the  present  statute  the  trustee  takes  "  property  which 
prior  to  the" ^filing  of  the  petition  he  [the  bankrupt]  could  by  any 
means  have  transferred  or  which  might  have  been  levied  upon  and  sold 
under  judicial  process  against  him."  U.  S.  St.  1898,  c.  541,  §  70.  It 
is  ver3r  plain  tbat  the  machinery  is  such  propert}7.  Bingham  v.  Jordan, 
1  Allen,  373,  Smith  v.  Howard,  173  Mass.  88,  and  therefore  it  passes 
to  the  plaintiff*^  Decree  affirmed.1 

A 


YORK  MANUFACTURING   COMPANY  v.   CASSELL. 
SUPREME  COURT  OF  THE  UNITED  STATES,  MARCH   14-ApRiL  2,  1906. 

[Reported  in  201  United  States,  344.] 

MR.  JUSTICE  PECKHAM  delivered  the  opinion  of  the  court. 

The  question  is  simply  whether  the  York  Manufacturing  Company  t.  .^^i)  .tAA^ 
has  a  right  under  its  [unfiled]  conditional  sale  of  the  machinery  to  the    '        ^ , 
bankrupt  corporation  to  take  the  machinery  out  of  the  premises  where  it    ' 
was  placed  as  against  all  except  judgment,  or  other,  creditors,  by  some  ^  \j^ 
specific  lien.     There  are  no  judgment   creditors  in  the  case   and   no    i«jCJLA*  ** 
attachment  has  been  levied,  and  the  question  is  simply  whether  the 
adjudication  in  bankruptcy  is  equivalent  to  a  judgment  or  an  attach- 
ment on  the  property,  so  as  to  prevent  the  York  Manufacturing  Com-  '• 
pan}'  from  asserting  its  right  to  remove  the  machinery  by  virtue  of  the  $*j  &*" 
reservation  of  title  contained  in  its  contract.  .Ajt*> 

In  Wilson  v.  Leslie,  20  Ohio,  161,  the  court  was  construing  the  lan- 
guage of  the  statute  relating  to  chattel  mortgages,  which  declared  a  \$-U^ 
mortgage  absolutely  void  as  against  creditors  of  the  mortgagor,  and  as     ,-jj  f\JL^ 
against  subsequent  purchasers  and  mortgagees  in  good  faith,  unless  the  &C^ 

mortgage  or  a  true  copy  thereof  should  be  deposited  forthwith,  as  '' 

1  A  portion  of  the  opinion  not  relating  to  the  law  of  bankruptcy  is  omitted.     See 
also  Clark  v.  Williams.  190  Muss.  219;  Goodrich  v.  Dore,  19J  Mass.  493. 


404  YOKK   MANUFACTURING   COMPANY  V.   CASSELL.      [CHAP.  V. 

directed  in  the  act.  The  court  held  that  the  mortgage  was  not  void 
for  lack  of  filing,  as  between  the  parties  thereto,  but  that  the  stat- 
ute only  avoided  the  instrument  as  to  those  creditors  who,  between 
the  time  of  the  execution  of  the  mortgage  and  the  filing  thereof,  had 
taken  steps  to  "fasten  upon  the  property  for  the  payment  of  their 
debts."  As  against  such  as  had  in  the  interim  secured  liens  by  attach- 
ment, execution  or  otherwise,  the  mortgage  would  be  void.  When 
filed  with  the  recorder  the  instrument  became  valid  as  against  all 
persons,  except  those  whose  rights  have  attached  upon  the  property 
before  the  recording  of  the  instrument.  See  to  the  same  effect  In 
re  Shirley,  112  Fed.  Rep.  301. 

We  have  not  been  referred  to  any  decision  of  the  Supreme  Court  of 
Ohio  as  to  the  meaning  of  the  statute  requiring  the  filing  of  contracts 
of  conditional  sales,  but  we  concur  with  the  Circuit  Court  of  Appeals 
in  this  case,  that  the  statute  would  render  the  unfiled  contract  void  as 
to  the  same  class  of  creditors  mentioned  in  the  chattel  mortgage  stat- 
ute. Therefore  the  contract  would  be  void  as  to  creditors  who  before 
its  filing  had  "  fastened  upon  the  property  "  by  some  specific  liens.  As 
to  creditors  who  had  no  such  lien,  being  general  creditors  only,  the 
statute  does  not  avoid  the  sale,  which  is  good  between  the  parties 
to  the  contract. 

The  mortgage  of  Waight  &  Ames  cannot  be  a  lien  on  the  machinery 
sold  by  the  York  Manufacturing  Compan}^  because  the  mortgage  was 
prior  to  the  time  when  any  portion  of  such  machinery  was  placed  upon 
the  land.  There  was  no  clause  in  the  mortgage  covering  after-acquired 
property,  and  in  any  event  the  mortgage  would  not  cover  property  so 
acquired,  the  title  to  which,  as  in  this  case,  was  reserved  to  the  vendor. 
This  was  the  ruling  of  the  District  Court,  and  no  appeal  was  taken 
therefrom  by  the  mortgagees.  There  are  no  creditors  with  any  specific 
liens,  nor  is  there  any  other  mortgage,  and  there  is  no  attachment. 

We  come  then  to  the  question  whether  the  adjudication  in  bank- 
ruptcy was  equivalent  to  a  judgment,  attachment,  or  other  specific 
lien  upon  the  machinery.  The  Circuit  Court  of  Appeals  has  held 
herein  that  the  seizure  by  the  court  of  bankruptcy  operated  as  an 
attachment  and  an  injunction  for  the  benefit  of  all  persons  having 
interests  in  the  bankrupt's  estate. 

.  .  -   A    We  are  of  opinion  thatTrdid  not  operate  as  a  lien  .upon  the  macbi- 
nery  as  against  the  York  Manufacturing  Company,  the  vendor  thereof. 
Under  the  provisions  of  the  bankrupt  act  the  trustee  in  bankruptcy  is 
vested  with  no  better  right  or  title  to  the   bankrupt's  property  than 
jy  belonged  to  the  bankrupt  at  the  time  when  the  trustee's  title  accrued. 

At  that  time  the  right,  as  between  the  bankrupt  and  the  York  Manu- 
facturing Company,  was  in  the  latter  company  to  take  the  machinery  on 
account  of  default  in  the  payment  therefor.  The  trustee  under  such  cir- 
cumstances stands  simply  in  the  shoes  of  the  bankrupt  and  as  between 
them  he  has  no  greater  right  than  the  bankrupt.  This  is  held  in 
Hewit  v.  -Berlin  Machine  Works,  194  U.  S.  296.  The  same  view  was 


SECT.  IV.]       YORK   MANUFACTURING   COMPANY   V.    CASSELL.  405 

taken  in  Thompson  v.  Fairbanks,  196  U.  S.  516.  It  was  there  stated 
that  ' '  under  the  present  bankrupt  act,  the  trustee  takes  the  property 
of  the  bankrupt,  in  cases  unaffected  by  fraud,  in  the  same  plight  and 
condition  that  the  bankrupt  himself  held  it,  and  subject  to  all  the 
equities  impressed  upon  it  in  the  hands  of  the  bankrupt.  See  Yeat- 
man  v.  Savings  Institution,  95  U.  S.  764  ;  Stewart  v.  Platt,  101  U.  S. 
731;  Hauselt  v.  Harrison,  105  U.  S.  401.  The  same  doctrine  was 
reaffirmed  in  Humphrey  v.  Tatman,  198  U.  S.  91.  The  law  of  Ohio 
says  the  conditional  sale  contract  was  good  between  the  parties, 
although  not  filed.  In  such  a  case  the  trustee  in  bankruptcy  takes 
only  the  rights  of  the  bankrupt,  where  there  are  no  specific  liens,  as 
already  stated. 

The  remark  made  in  Mueller  v.  Nugent,  184  U.  S.  1,  "  that  the  filing 
of  the  petition  [in  bankruptc}']  is  a  caveat  to  all  the  world,  and  in  effect 
an  attachment  and  injunction,"  was  made  in  regard  to  the  particular 
facts  in  that  case.  The  case  itself  raised  questions  entirely  foreign  to 
the  one  herein  arising,  and  did  not  involve  an}'  inquiry  into  the  title  of 
a  trustee  in  bankruptcy  as  between  himself  and  the  bankrupt,  under 
such  facts  as  are  above  stated.  The  dispute  in  the  Mueller  case  was 
whether  the  court  in  bankruptcy  had  power  to  compel,  in  a  summary 
wa}r,  the  surrender  of  money  or  other  property  of  the  bankrupt  in  the 
possession  of  the  bankrupt,  or  of  some  one  for  him,  without  resorting 
to  a  suit  for  that  purpose.  This  court  held,  as  stated  by  the  Chief  Jus- 
tice in  delivering  its  opinion :  "  The  bankruptcy  court  would  be  helpless 
indeed  if  the  bare  refusal  to  turn  over  could  conclusive^  operate  to 
drive  the  trustee  to  an  action  to  recover  as  for  an  indebtedness,  or  a 
conversion,  or  to  proceedings  in  chancery,  at  the  risk  of  the  accompani- 
ments of  delay,  complication,  and  expense,  intended  to  be  avoided  by 
the  simpler  methods  of  the  bankrupt  law."  It  was  held  that  the  trus- 
tee was  not  thus  bound,  but  had  the  right,  under  the  facts  in  that  case, 
to  proceed  under  the  bankrupt  law  itself  and  take  the  property  out  of 
the  hands  of  the  bankrupt  or  any  one  holding  it  for  him. 

In  this  case,  under  the  authorities  already  cited,  the  York  Manufac- 
turing Company  had  the  right,  as  between  itself  and  the  trustee  in 
bankruptcy,  to  take  the  property  under  the  untiled  contract  with  the 
bankrupt,  and  the  adjudication  in  bankruptc}r  did  not  operate  as  a  lien 
upon  this  machinery  in  favor  of  the  trustee  as  against  the  York  Manu- 
facturing Company. 

The  decree  of  the  Circuit  Court  of  Appeals  is  reversed  and  the  case 
remanded  to  the  District  Court,  with  directions  to  enter  a  decree  in 
conformity  with  this  opinion.  Reversed. 


i 


406 


PACIFIC   STATE   BANK  V.   COATS. 


[CHAP.  v. 


PACIFIC   STATE   BANK  v.  COATS. 
CIRCUIT  COURT  OF  APPEALS  FOR  THE  NINTH  CIRCUIT,  MAY  21,(  19  1& 

[Reported  in  205  Federal  Reporter,  618.] 

APPEAL  from  a  judgment  of  the  District  Court  of  the  United  States 
for  the  Western  District  of  Washington,  disallowing  a  claim. 

Before  GILBERT  and  MORROW,  Circuit  Judges,  and  WOLVERTON, 
District  Judge. 

WOLVERTON,  District  Judge. 

A.  S.  Coats  is  trustee  in  bankruptcy  of  the  Raymond  Box  Company, 
a  corporation.  On  December  2,  1910,  the  company  executed  and  de- 
red  to  appellant,  the  Pacific  State  Bank,  a  note  for  the  sum  of 
$23,400  and  a  mortgage  to  secure  its  payment  upon  certain  j-eal  an4 
personal  property  of  the  bankrupt.  The  bank  in  due  time  filed  its 
claim  with  the  trustee,  asserting  preference  over  the  general  creditors 
as  to  such  property  by  reason  of  its  mortgage.  Objections  having  been 
*'  interposed  to  the  validity  of  the  mortgage  on  account  of  alleged  irregu- 


larities attending  its  execution,  acknowledgment,  and  recording,  the 
cause  was  submitted  to  the  District  Court  for  its  determination,  and, 
the  decision  being  adverse  to  the  bank,  it  has  appealed  to  this  court. 

Is  the  trustee  in  bankruptcy  in  a  position  to  controvert  the  validity 
of  the  mortgage  either  as  a  real  or  chattel  mortgage?  It  is  insisted  on 
the  part  of  the  bank  that,  because  the  trustee  represented  only  creditors 
who  became  such  after  the  date  of  giving  the  mortgage,  he  cannot 
question  the  validity  of  such  mortgage. 

[The  court  here  quotes  the  amendment  of  1910  to  section  47,  cl.  2.] 
It  is  the  purpose  of  this  amendment  to  vest  in  the  trustee  for  the 
interest  of  all  creditors  the  potential  rights  of  creditors  possessing  or 
holding  liens  upon  the  property  coming  into  his  custody  by  legal  or 
equitable  proceedings.  The  trustee  no  longer  stands  in  the  shoes 
merely  of  the  bankrupt,  with  the  limited  rights  of  the  bankrupt  to 
attack  unrecorded  liens  which  may  be  valid  and  unimpeachable  by  such 
bankrupt  ;  but  the  amendment  by  operation  of  law  vests  in  him  a  lien 
equivalent  to  such  as  would  be  acquired  by  legal  or  equitable  pro- 
ceedings upon  the  property  coming  into  his  custody  by  virtue  of  the 
bankruptcy  proceedings.  "The  class  of  cases,  unprovided  for  by  the 
original  act,  and  intended  to  be  reached  by  the  amendment,"  says  Mr. 
Collier  in  his  work  on  Bankruptcy  (9th  Ed.),  p.  659,  "was  that  in 
which  no  creditors  had  acquired  liens  by  legal  or  equitable  proceedings 
and  to  vest  in  the  trustee  for  the  interest  of  all  creditors  the  potential 
rights  of  creditors  potential  with  such  liens."  "  This  provision  of  the 
Bankruptcy  Act,"  says  WITNER,  Judge,  in  Re  Hartdagen  (D.  C.,  Pa.), 
189  Fed.  546,  549,  "puts  the  trustee,  in  so  far  as  the  assets  of  the 
estate  are  concerned,  in  the  position  of  a  lien  creditor,"  distinguishing 
the  case  of  York  Mfg.  Co.  v.  Cassell,  201  U.  S.  344,  and  others  of  its 


SECT.  IV.]  PACIFIC    STATE   BANK   V.   COATS.  407 

character  which  it  is  thought  inspired  the  amendment.     Mr.  Collier  is 
further  of  the  view  that  : 

'  '  The  purpose  of  Congress  was  to  embrace  within  these  words  every 
class  of  creditors  with  liens  by  legal  or  equitable  proceedings  favored 
by  the  varying  registration  laws  of  each  of  the  states."  Collier  on 
Bankruptcy  (9th  Ed.),  p.  660. 

See  also,  In  re  Calhoun  Supply  Co.  (D.  C.,  Ala.),  189  Fed.  537  ;  In  re 
Franklin  Lumber  Co.  (D.  C.,  Va.),  187  Fed.  281  ;  In  re  Williamsburg 
Knitting  Mill  (D.  C.,  Va.),  190  Fed.  871  ;  In  re  Bazemore  (D.  C.,  Ala.), 
189  Fed.  236. 

The  mortgage  was  duly  filed  in  the  county  auditor's  office,  and  re- 
corded in  mortgage  records,  but  not  in  the  records  kept  for  recording 
chattel  mortgages. 

Let  us  first  consider  the  validity  of  the  mortgage  as  a  chattel  mort- 
gage, in  so  far  as  the  trustee  may  be  affected  thereby.  Under  the  laws 
of  the  State  of  Washington,  a  mortgage  of  chattels  must  be  recorded 
in  the  office  of  the  county  auditor  of  the  county  in  which  the  mortgaged 
property  is  situated,  in  a  book  kept  exclusively  for  that  purpose.  Sec- 
tion 4559,  Ballinger's  Ann.  Codes  and  Stats,  of  Washington.  By  the 
previous  section  it  is  provided  : 

"  A  mortgage  of  personal  property  is  void  aq  gya^jpet  creditors.  of  the      ~wJL*  wo 
mortgagor  or  subsequent  purchaser  and  incumbrancers  of  the  property 


for  value  and  in  good  faith,  unless  it  is  accompanied  by  the  affidavit  of 
the  mortgagor  that  it  is  made  in  good  faith,  and  without  any  design  to 
hinder,  delay,  or  defraud  creditors,  and  it  is  acknowledged  and  recordedv^ 
in  the  same  manner  as  is  required  by  law  in  conveyance  of  real  property."  »~ 

And  it  has  been  held  by  the  Supreme  Court  of  the  State  that  a  chat- 
tel mortgage,  although  duly  acknowledged  as  a  real  estate  mortgage, 
which  is  filed  and  recorded  in  the  records  ]of  real  estate  mortgages 
only,  and  not  in  a  book  kept  exclusively  for  the  purpose  of  recording 
chattel  mortgages  in  the  county  auditor's  office,  is  not  effective  to  im- 
part notice  to  third  persons,  and  the  fact  of  the  recording  in  the  real 
estate  record  of  mortgages  is  insufficient  as  a  recording  of  the  mort- 
gage. Dunsmuir  v.  Port  Angeles  Gas,  Water,  Electric  L.  &  P.  Co.,  24 
Wash.  104. 

That  court  has  also  construed  section  4558  to  mean  practically  what 
its  language  imports,  namely,  that  a  personal  property  mortgage  unre- 
corded is  void  against  all  creditors  of  the  mortgagor,  whether  prior  or 
subsequent,  and  especially  the  latter.  In  Willamette  Casket  Co.  v. 
Cross  Undertaking  Co.,  12  Wash.  190,  194,  the  court  said  : 

"  The  language  of  the  statute  and  these  authorities  satisfy  us  that 
it  was  the  intention  of  the  Legislature  to  give  no  preference  to  a 
chattel  mortgagee  over  the  claims  of  creditors  who  should  become 
such  after  its  execution,  unless  it  was  recorded  within  a  reasonable 
time  after  its  execution,  and  that  the  mortgage  in  question  was  not 
recorded  within  such  reasonable  time." 

And  it  was  held  in  that  case  that  the  creditors  who  became  such 


X 

408  PACIFIC   STATE  BANK   V.    COATS.  [CHAP.  V. 

subsequent  to  the  execution  and  filing  of  the  chattel  mortgage  were 
entitled  to  superior  right  over  the  mortgage.  This  decision  was  fol- 
lowed in  a  subsequent  case,  namely,  Manhattan  Trust  Co.  v.  Seattle 
Coal  &  Iron  Co.,  16  Wash.  499,  wherein  it  was  held  in  effect  that  the 
mortgage  unrecorded  was  void  as  to  subsequent  creditors.  The  case 
of  Roy  &  Co.  v.  Scott,  Hartley  &  Co.,  11  Wash.  399,  is  not  in  accord 
with  these  decisions  as  it  respects  the  construction  of  the  statute,  but 
these  being  the  later  will  prevail.  So  that  under  the  authorities  here 
cited,  and  by  which  we  are  controlled  as  they  construe  the  laws  of 
Washington,  the  ".mortgage  in  the  present  case  as  a  chattel  mortgage 


must  be  held  ^o~be  void  as  against  the  trustee,  hpjftanap-  if  was  n 
larly  recorded  as  a  chattel  mortgage  in  a  book  kept  exclusively  for 
that  purpose  in  the  auditor's  office.  This  upon  the  specific  language 
of  the  statute  rendering  the  mortgage  void  as  to  creditors  of  the 
mortgagor.  • 

As  it  pertains  to  the  regularity  of  the  acknowledgment  of  the  docu- 
ment as  a  real  estate  mortgage,  we  have  concluded  it  may  well  be  con- 
ceded to  be  irregular,  and  yet  it  must  be  held  that  the  mortgage  is  good 
as  against  the  trustee  in  bankruptcy,  and  constitutes  a  superior  lien  to 
the  demand  of  such  trustee,  under  the  holding  of  the  Supreme  Court 
of  the  State  of  Washington,  read  in  connection  with  section  47a,  subd. 
2,  of  the  Bankruptcy  Act.  It  seems  to  be  settled  law  in  the  State  that 
an  unacknowledged  deed  is  good  as  between  the  parties  thereto,  and  con- 
veys at  least  the  equitable  title  to  the  real  property  involved.  Matson 
v.  Johnson,  48  Wash.  256,  258.  See  also,  Carson  v.  Thompson,  10 
Wash.  295,  and  Bloomingdale  v.  Weil,  29  Wash.  611,  at  page  634. 
In  the  latter  case,  the  court  says  : 

"  The  fact  that  an  instrument  is  defectively  acknowledged,  or  that 
the  certificate  of  acknowledgment  is  defectively  certified,  will  not  affect 
its  operative  force,  at  least  in  equity,  as  against  the  grantor  or  one  who 
is  not  a  bonafide  purchaser." 

An  unacknowledged  mortgage  or  one  defectively  acknowledged  must 
needs  stand  in  the  same  category  as  an  acknowledged  deed,  and  would 
consequently  be  good  as  between  the  parties.  At  least  it  would  oper- 
ate to  create  an  equitable  lien  upon  the  specific  property  as  security 
for  the  payment  of  the  demand  sought  to  be  secured. 

It  is  not  entirely  clear  whether  this  latter  section  was  intended  as  a 
curative  statute  or  not,  but  it  has  been  uniformly  held  by  the  Supreme 
Court  of  the  State  that  a  judgment  creditor  is  not  a  bonajide  purchaser, 
and  that  the  lien  of  the  judgment  binds  only  the  interest  that  the  judg- 
ment debtor  actually  has  in  the  real  estate.  The  question  was  elabo- 
rately discussed,  and  so  concluded  in  Dawson  v.  McCarty,  21  Wash. 
314.  That  was  a  case  where  a  judgment  was  duly  rendered  subse- 
quently to  the  due  execution  of  a  mortgage  but  prior  to  its  recordation, 
and  it  was  held  that  the  lien  of  the  mortgage  was  superior  in  right  to 
the  judgment.  The  learned  judge  rendering  the  opinion  quotes  from 
Pomeroy's  Equity  Jurisprudence,  §  721,  as  follows: 


SECT.  IV.]  PACIFIC   STATE    BANK   V.    COATS.  409 

"The  doctrine  is  certainly  established  as  part  of  the  equity  jurispru- 
dence, and  rests  upon  the  solid  basis  of  principle  that  p'rior  equitable 
interests  in  rem,  including  equitable  liens  upon  specific  parcels  of  land, 
have  priority  of  right  over  the  general  statutory  lien  of  subsequent 
docketed  judgments,  although  the  latter  is  legal  in  its  nature.  Judg- 
ment creditors  are  not  '  purchasers/  within  the  meaning  of  the  record- 
ing acts,  and,  unless  expressly  put  upon  the  same  footing,  they  do  not 
obtain  the  benefit  which  a  subsequent  purchaser  does  by  a  prior 
record.  The  equitable  doctrine  is  that  a  judgment,  and  the  legal  lien 
of  its  docket,  binds  only  the  actual  interest  of  the  judgment  debtor, 
and  is  subject  to  all  existing  equities  which  are  valid  as  against  such 
debtor." 

This  doctrine  he  applies  to  the  case,  and,  after  examining  other 
authorities,  says : 

"  The  decided  weight  of  authority  seems  to  be  that  the  term  '  bona 
fide  purchasers,'  in  the  recording  act,  does  not  include  a  judgment 
creditor." 

And  he  further  says  : 

"  It  is  immaterial  whether  the  mortgagee  is  strictly  a  bona  fide  pur- 
chaser within  the  meaning  of  the  statute.  The  question  is  whether  the 
judgment  creditor  is  a  bona  fide  purchaser,  and  thus  within  the  pro- 
tection of  the  statute." 

And  it  was  finally  adjudged  that  the  judgment  lien  should  be  subor- 
dinate to  the  lien  of  the  mortgagee. 

In  a  much  earlier  case  it  was  said  that : 

"An  execution  creditor  is  not  a  bona  fide  purchaser.  He  parts  with 
no  consideration  on  account  of  the  goods,  and  he  takes  no  greater  in- 
terest than  his  debtor  has."  Scott  v.  McGraw,  3  Wash.  675. 

And  in  another  case  it  was  said : 

"  It  has  been  established  as  the  rule  in  this  State  that  a  judgment  is 
a  lien  upon  the  real,  and  not  the  apparent,  interest  of  the  debtor.  An 
execution  creditor  purchasing  at  his  own  sale  is  not  a  bona  fide  pur- 
chaser. He  parts  with  no  consideration,  and  takes  no  greater  interest 
than  his  debtor  has."  Woodhurst  v.  Cramer,  29  Wash.  40,  48. 

See  also,  Hacker  v.  White,  22  Wash.  415 ;  American  Sav.  Bank  & 
Trust  Co.  v.  Helgesen,  67  Wash.  572,  575. 

Such  being  the  law  of  the  State  of  Washington  as  expressed  by  the 
Supreme  Court,  it  is  clear  that  an  attachment,  judgment  or  execution 
lien  creditor  acquires  no  rights  in  the  property  except  upon  the  interest 
which  the  debtor  may  have  therein  at  the  time  the  lien  attaches ;  and 
such  is  all  the  trustee  can  acquire  under  the  clause  of  the  Bankruptcy 
Act  which  we  have  been  discussing,  being  vested  with  and  entitled  to 
all  the  rights,  remedies  and  powers  of  a  creditor  holding  a  lien  by  legal 
or  equitable  proceeding,  or  of  a  judgment  creditor  holding  an  execution 
duly  returned  unsatisfied.  The  mortgage  must  be  held  to  be  superior 
in  right  to  the  statutory  lien  of  the  trustee. 


410  THOMAS   V.    WOODS.  [CHAP.  Y. 


THOMAS  v.   WOODS. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  EIGHTH  CIRCUIT, 
SEPTEMBER,  1909. 

[Reported  in  1 73  Federal  Reporter,  585.] 

Before  ADAMS,  Circuit  Judge,  and  RINER  and  AMIDON,  District 
Judges. 

AMIDON,  District  Judge. 

At  all  the  times  mentioned  in  the  record,  Mr.  and  Mrs.  Thomas  were 
citizens  and  residents  of  the  State  of  Kansas,  by  whose  laws  the  wife's 
right  of  dower  has  been  abrogated.  By  the  laws  of  Missouri,  where 
the  lands  are  located,  the  wife  is  granted  a  right  of  dower  in  all  real 
property  owned  by  the  husband  during  coverture.  Section  8  of  the 
Bankruptcy  Act  is  as  follows  : 

"The  death  or  insanity  of  a  bankrupt  shall  not  abate  the  proceed- 
ings, but  the  same  shall  be  conducted  and  concluded  in  the  same 
manner,  so  far  as  possible,  as  though  he  had  not  died  or  become  in- 
sane :  Provided,  that  in  case  of  death,  the  widow  and  children  shall 
be  entitled  to  all  rights  of  dower  and  allowance  fixed  by  the  laws  of 
the  State  of  the  bankrupt's  residence." 

It  is  contended  by  appellee,  and  was  held  by  the  trial  court,  that 
under  the  proviso  of  this  section  the  dower  rights  of  the  wife,  in  case 
of  the  bankruptcy  of  her  husband,  are  restricted  to  those  allowed  by 
the  taws  of  the  State  of  the  bankrupt's  residence.  Upon  this  interpre- 
tation of  the  statute,  it  was  decided  that  Mrs.  Thomas  was  not  entitled 
to  any  dower  interest  in  property  situated  in  Missouri,  although  the 
laws  of  that  State  granted  her  such  rights.  We  do  not  think  this  a 
sound  view  of  the  law  of  dower,  or  of  section  8  of  the  Bankruptcy 
Act. 

1.  It  is  first  urged  in  support  of  the  decision  that,  if  the  laws  of  the 
several  States  on  the  subject  of  dower  are  made  applicable  to  the 
estates  of  bankrupts,  it  will  cause  the  Bankruptcy  Act  not  to  be 
uniform.     That,  in  our  opinion,  is  a  mistaken  view  of  the  provision 
of  the  Federal  Constitution  relating  to  bankruptcy.     The  uniformity 
which  it  requires  relates  to  the  law  itself,  and  not  to  its  results  upon 
the  varying  rights  of  debtor  and  creditor  under  the  laws  of  the  several 
States. 

2.  It  is  next  urged  that  the  right  of  dower  belongs  in  the  same  class 
as  the  right  of  exemptions  and  homesteads,  which  are  confined  by  sec- 
tion 6  of  the  Bankruptcy  Act  to  the  State  of  the  bankrupt's  domicile. 
Their  similitude  is  very  slight.    Both  are  in  a  general  way  for  the 
protection  of  the  family.     There,  however,  their  likeness  ceases.     The 
homestead  and  exemptions  are  a  part  of  the  bankrupt's  estate.     They 
are  both  primarily  to  be  claimed  by  him  and  set  off  to  him.     Their 
selection  from  his  estate  arises  at  the  time  when  that  estate  is  to  be 


SECT.  IV.]  THOMAS   V.   WOODS.  411 

appropriated  to  the  payment  of  the  claims  of  his  creditors^  Dower, 
on  the  other  hand,  is  no  part  of  the  bankrupt's  estate. '  The  wife  de- 
rives no  right  from  him  either  by  grant  or  contract.  As  the  Supreme 
Court  says  in  Randall  v.  Krieger,  23  Wall.  137,  148:  "It  is  wholly 
given  by  law."  Congress  has  plenary  power  over  the  subject  of  ex- 
emptions, because  they  are  part  of  the  bankrupt's  estate.  It  may,  as 
in  the  present  law,  adopt  the  exemption  laws  of  the  several  States, 
or  it  may,  as  in  the  Act  of  1867  (Act  March  2,  1867,  ch.  176,  14  Stat. 
517),  adopt  local  laws  in  part,  and  supplement  these  with  a  schedule 
of  its  own.  Its  power  to  deal  with  the  subject,  however,  arises  out 
of  the  fact  that  exemptions  are  a  part  of  the  bankrupt's  estate.  This 
consideration  shows  that  the  right  of  dower  does  not  belong  in  the 
same  class.  Again,  the  right  of  dower  has  nothing  to  do  with  the  in- 
solvency of  the  husband.  It  arises  from  time  to  time  during  the  mar- 
riage relation  as  the  husband  acquires  real  property.  If  the  wife  has 
not  released  her  right  of  dower,  it  is  as  much  her  own  private,  abso- 
lute property  as  if  she  had  acquired  it  by  purchase.  That  estate  can 
no  more  be  transferred  to  her  husband's  creditors  than  any  other  por- 
tion of  her  separate  estate.  At  the  present  time  in  the  United  States, 
the  wife,  as  to  her  property  rights,  is  a  third  person,  and  her  estate  is 
no  more  affected  by  the  insolvency  of  her  husband  than  is  the  property 
of  other  third  parties.  In  our  judgment  it  would  be  beyond  the  con- 
stitutional power  of  Congress  to  provide  that  in  case  of  bankruptcy 
the  dower  rights  of  the  bankrupt's  wife,  as  defined  by  the  laws  of  the 
several  States,  ceased,  and  the  real  property  owned  by  him  passed  to 
his  trustee  in  bankruptcy  discharged  from  such  right  of  dower.  Bank- 
ruptcy can  only  deal  with  what  in  law  belongs  to  the  bankrupt.  It 
may  annul  his  acts  and  the  acts  of  his  creditors  which  interfere  with 
the  just  enforcement  of  its  provisions.  It  cannot,  however,  annul  an 
Act  of  the  legislature  of  a  State  which  previous  to  the  statute  of  bank- 
ruptcy had  vested  an  estate  in  the  wife  of  the  bankrupt.  Its  whole 
field  of  operation  is  circumscribed  to  getting  in  the  estate  which  under 
the  law  belongs  to  the  bankrupt,  and  distributing  the  same  to  his 
creditors.  It  cannot  reach  out  and  take  property  which  under  the  law 
belongs  to  the  wife,  and  apply  it  to  the  payment  of  the  bankrupt's 
debts,  any  more  than  it  could  seize  that  portion  of  her  property  which 
she  acquired  by  purchase  or  devise.  Again,  it  does  not  follow  that 
because  the  right  of  homestead  and  exemptions  is  confined  in  most 
of  the  States  to  the  domicile  of  the  claimant,  such  a  restriction  would 
be  appropriate  in  regard  to  dower.  Dower  is  not  measured  in  value 
or  quantity  as  homesteads  or  exemptions  are.  The  amount  of  it  is 
dependent  solely  upon  the  amount  of  real  property  of  which  the  hus- 
band is  seized.  The  debtor  could  not  be  allowed  homesteads  and 
exemptions  under  the  laws  of  different  States  without  securing  a 
double  allowance.  The  right  must  be  restricted  to  the  laws  of  some 
particular  State,  and  the  most  natural  restriction  is  the  State  of  the 
claimant's  domicile.  Such  considerations,  however,  do  not  apply  to 


412  THOMAS   V.    WOODS.  [CHAP.  V. 

dower.  Granting  the  right  in  real  property  situated  iu  different  States 
does  not  duplicate  the  right.  As  already  mentioned,  it  is  measured  by 
the  extent  of  the  husband's  ownership  of  property,  and  the  location  of 
such  property  is  material  only  as  the  right  of  dower  is  governed  by  the 
laws  of  the  State  in  which  the  land  is  situated. 

We  are  unable  to  see  how  the  decision  in  Re  Stevens,  Fed.  Cas. 
No.  13,392,  throws  any  light  on  the  present  case.  There  the  bank- 
rupt had  filed  a  petition  in  bankruptcy  in  the  Eastern  District  of  Wis- 
consin. A  part  of  his  estate,  consisting  of  a  span  of  horses,  harness 
and  wagon,  while  temporarily  across  the  State  line  in  Illinois,  had  been 
seized  on  a  warrant  of  attachment.  The  filing  of  the  petition  in  bank- 
ruptcy had  the  effect  to  dissolve  this  attachment;  but  the  creditors 
petitioned  the  court  of  bankruptcy  to  allow  the  action  in  Illinois  to 
proceed,  assigning  as  a  reason  that  under  the  exemption  laws  of  Wis- 
consin the  property  in  question  would  be  exempt,  while  under  the  laws 
of  Illinois  it  would  not  be.  The  court  very  properly  held  that  the 
bankrupt's  right  of  exemption  must  be  determined  by  the  State  of  his 
domicile ;  that  the  creditors  could  not  invoke  the  laws  of  Illinois,  be- 
cause they  granted  less  exemptions,  any  more  than  the  bankrupt  could 
have  invoked  them  if  they  had  granted  larger  exemptions  than  Wis- 
consin. 

3.  Some  point  is  made  of  the  fact  that  under  the  laws  of  Kansas  the 
family  secured  a  liberal  homestead  and  exemptions.     That  has  nothing 
to  do,  however,  with  the  right  of  dower.     The  right  of  homestead  and 
exemptions  has  existed  in  all  of  the  States  granting  the  right  of  dower, 
and  in  many  of  them  these  allowances  are  quite  as  liberal  as  they  are 
in  the  State  of  Kansas. 

4.  That  Mrs.  Thomas  has  an  inchoate  right  of  dower  in  the  property 
in  question  under  the  laws  of  Missouri  is  not  controverted.     Such  a 
right  is  expressly  secured  to  her  by  sections  2933  and  2946  of  the 
Revised  Statutes  of  1899  of  that  State  (Ann.  St.  1906,  pp.  1690,  1698), 
and  continues  until  released  by  her  deed  in  the  manner  therein  specified. 
These  statutes  have  been  looked  upon  with  favor  by  the  highest  court 
of  that  State,  and  so  construed  to  carry  out  their  manifest  purpose. 
Grady  v.  McCorkle,  57  Mo.  172 ;  Ellis  v.  Kyger,  90  Mo.  606 ;  Davis  v. 
Green,  102  Mo.  170;  Hallv.  Smith,  103  Mo'.  289;  Blevins  v.  Smith,  104 
Mo.  583;  Long  v.  Kansas  City  Stockyards  Co.,  107  Mo.  298.     The 
right  of  dower  in  real  property  is  determined  by  the  laws  of  the  State 
in  which  the  property  is  situated.     Story  on  Conflict  of  Laws,  §§  424, 
428,  445  ;  Kerr  v.  Moon,  9  Wheat.  565  ;  Wilson  v.  Cox,  49  Miss.  538  ; 
Appersonv.  Bolton,  29  Ark.  418 ;  Washburn  v.  Van  Steenwyk,  32  Minn. 
336  ;  Jones  v.  G crock,  59  N.  C.  190 ;  Jennings  v.  Jennings,  21  Ohio  St. 
56;  Atkinson  v.  Staigg,  13  R.  I.  725.     The  highest  court  of  Missouri, 
from  an  early  date,  has  construed  the  statutes  of  that  State  as  securing 
the  right  of  dower  in  real  property  within  the  State  to  non-residents, 
the  same  as  to  residents.     Stokes  v.  O'Fallon,  2  Mo.  32.     Suppose  a 
bankrupt  residing  in  Missouri  should  die  seized  of  real  property  in 


SECT.  IV.]  THOMAS   V.    WOODS.  413 

Kansas ;  would  his  widow,  under  the  proviso  of  section  8  of  the  Bank- 
ruptcy Act,  be  entitled  to  dower  in  that  property?  Plainly  not,  because 
the  law  of  Kansas  does  not  grant  dower.  No  more  should  she,  when 
the  situation  is  reversed,  lose  her  right  of  dower  as  to  real  property 
situated  in  Missouri.  That  right  is  fixed  by  the  laws  of  the  State  in 
which  the  property  is  situated. 

It  is  said  by  appellee  that  the  right  of  dower  is  "  a  mere  intangible, 
inchoate,  contingent  expectancy,  and  not  an  estate  in  lands,  and  does 
not  rise  to  the  dignity  of  a  vested  right."  That  is  quite  true.  But  this 
has  been  the  quality  of  the  right  at  all  times,  at  common  law  and  under 
statute.  It  is  precisely  such  a  right  that  is  secured  by  the  statute  of 
Missouri,  and  it  would  be,  in  our  judgment,  a  perversion  of  judicial 
power  to  make  of  the  inherent  qualities  of  the  right  a  reason  for  de- 
stroying or  impairing  it. 

It  must  be  conceded,  therefore,  that  the  right  exists,  unless  it  has 
been  taken  away  by  the  Bankruptcy  Act.  To  determine  whether  that 
has  happened,  we  ought  to  look  first  at  the  general  scheme  of  that 
statute.  The  most  conspicuous  feature  of  the  present  Bankruptcy  Act 
is  a  clear  purpose  to  save  to  the  bankrupt  and  his  family  every  right 
possessed  by  them  under  the  laws  of  the  several  States,  and  to  grant 
to  creditors  no  property  or  right  which  would  not  have  been  theirs  if 
the  Bankruptcy  Act  had  not  been  passed.  The  courts  have  repeatedly 
referred  to  this  as  a  feature  distinguishing  the  present  Act  from  all 
previous  statutes  on  the  subject.  It  makes  the  law  of  the  several 
States  the  measure  of  the  rights  to  be  protected  and  enforced,  both  as 
to  the  bankrupt  and  his  creditors.  In  defining  what  shall  pass  to  the 
trustee  for  the  benefit  of  creditors,  it  designates  "property  which 
prior  to  the  filing  of  the  petition  the  bankrupt  could  by  any  means  have 
transferred,  or  which  might  have  been  levied  upon  and  sold  under  ju- 
dicial process  against  him."  By  the  express  provisions  of  the  statute 
of  Missouri  the  wife's  right  of  dower  does  not  fall  within  this  language. 
It  being  no  part  of  the  property  which  the  trustee  is  to  administer,  it 
is  difficult  to  understand  how  the  right  of  dower  can  be  affected  by  the 
Bankruptcy  Act ;  and  yet  the  whole  purpose  of  the  order  now  under 
review  is  to  appropriate  to  the  bankrupt's  creditors  the  widow's  right 
of  dower,  by  selling  the  property  freed  from  that  right.  But,  again, 
the  present  Bankruptcy  Act  also  approaches  this  subject  negatively. 
It  points  out  in  section  67  all  liens,  transfers,  and  estates  which  are  to 
be  invalidated  by  the  Bankruptcy  Act.  If  it  had  been  the  intent  of  the 
framers  of  the  statute  either  to  restrict  or  abolish  the  right  of  dower, 
we  should  have  found  the  provision  designed  to  accomplish  that  pur- 
pose in  this  section.  It  is  not  there.  On  the  contrary,  a  most  scrupu- 
lous care  is  evinced  throughout  the  section  to  save  all  rights  and  liens 
obtained  in  good  faith  from  the  bankrupt.  If  rights  resting  wholly 
upon  private  negotiation  are  safe,  can  any  reason  be  assigned  why  a 
right  created  by  statute  in  furtherance  of  the  public  policy  of  a  State 
should  not  also  be  secured  ? 


414  THOMAS   V.    WOODS.  [CHAP.  V. 

In  the  light  of  these  general  considerations,  let  us  approach  section 
8  of  the  Bankruptcy  Act,  which,  according  to  appellee,  destroys  Mrs. 
Thomas'  right  of  dower.  In  our  judgment  that  right  is  safe  upon 
either  of  four  grounds : 

a.  The  principal  clause  of  section  8  deals  with  the  contingency  of 
the  death  of  the  bankrupt  during  the  pendency  of  the  proceedings  in 
bankruptcy.  By  a  cardinal  rule  of  interpretation,  a  proviso  does  not 
extend  beyond  the  scope  of  the  principal  clause  of  the  statute.  The 
entire  language  and  purpose  of  the  section  clearly  indicates  to  our 
minds  that  this  rule  of  interpretation  should  be  applied  in  ascertaining 
its  meaning.  It  relates  only  to  estates  in  which  the  bankrupt  dies  dur- 
ing the  pendency  of  the  proceeding.  This  is  not  only  the  general  sub- 
ject-matter of  the  section,  but  is  also  clearly  pointed  out  in  the  proviso 
itself  as  the  contingency  intended  to  be  covered  by  it.  "In  case  of 
death,"  are  the.  first  words  of  the  proviso,  and  these  words  qualify  all 
its  other  provisions.  Such  being  the  scope  of  the  section,  the  estate 
here  involved  can  be  in  no  way  affected  by  it,  for  the  bankrupt  is  still 
alive. 

6.  It  was  manifestly  the  belief  of  Congress  that,  in  the  absence  of 
section  8,  the  bankruptcy  proceeding  would  abate  in  case  of  the  bank- 
rupt's death.  The  property  of  the  estate  would  in  that  event  pass  to 
the  personal  representatives  of  the  bankrupt,  to  be  administered  ac- 
cording to  local  laws.  In  such  a  contingency,  the  widow's  right  of 
dower  in  real  property,  and  the  allowances  to  the  family  out  of  the 
personal  estate,  would  be  complete,  would  become  immediately  vested, 
and  would  take  priority  over  the  rights  of  creditors.  Section  8  prevents 
the  proceeding  in  bankruptcy  from  abating ;  but,  by  the  proviso,  Con- 
gress intended  to  save  to  the  widow  and  children  all  that  they  would 
have  obtained  in  case  of  its  abatement.  It  cannot  be  denied  that,  if 
the  present  bankruptcy  proceeding  were  to  abate,  Mrs.  Thomas'  right 
of  dower  in  real  property  in  Missouri  would  be  complete. 

c.  The  proviso  may  be  interpreted  as  having  been  used  simply  out 
of  an  abundance  of  caution.  If  that  be  its  effect,  it  leaves  all  rights 
precisely  as  they  would  have  been  if  the  proviso  had  been  omitted.  It 
neither  enlarges  nor  restricts  those  rights,  but  simply  saves  them.  That 
is  the  interpretation  which  was  put  upon  the  language  by  the  majority 
of  this  court  in  the  case  of  In  re  McKenzie,  142  Fed.  383.  If  we 
adopt  that  interpretation,  it  leaves  the  right  of  dower  just  as  it  stood 
under  the  laws  of  the  several  States.  The  fact  that  the  proviso  is  re- 
stricted by  the  clause  ' '  fixed  by  the  laws  of  the  State  of  the  bank- 
rupt's residence"  would  be  immaterial.  The  entire  proviso  being 
used  only  out  of  an  abundance  of  caution,  the  fact  that  its  language 
is  not  as  comprehensive  as  the  right  to  which  it  refers  would  not  re- 
strict the  right,  because  the  intended  effect  of  the  proviso  is  simply  to 
preserve  rights  as  already  existing.  To  say  that  the  proviso  was  used 
for  the  purpose  of  removing  a  possible  doubt  as  to  whether  existing 
rights  were  not  to  be  affected  by  section  8,  and  yet  hold  that,  because 


SECT.  IV.]  THOMAS   V.   WOODS.  415 

its  language  is  narrow,  the  rights  to  which  it  refers  are  narrowed,  is  to 
deny  in  the  conclusion  what  is  assumed  in  the  premise,  namely,  that 
the  proviso  is  used  out  of  an  abundance  of  caution,  and  not  for  the 
purpose  of  affecting  existing  rights.  It  was  expressly  decided  in  Por- 
ter v.  Lazear,  109  U.  S.  84,  that  the  omission  from  a  Bankruptcy  Act 
of  any  provision  saving  the  right  of  dower  ' '  does  not  enlarge  the  ef- 
fect of  the  assignment,  or  of  the  sale  in  bankruptcy,  so  as  to  include 
lawful  rights  which  belong,  not  to  the  husband,  but  to  his  wife."  It 
was  further  decided  that  the  proviso  in  the  Act  of  1841,  saving  the 
right  of  dower,  was  "a  mere  declaration,  inserted  for  greater  caution." 
See,  also,  Hanover  National  Bank  v.  Moyses,  186  U.  S.  181,  190.  If 
we  adopt  the  interpretation  of  section  8  here  outlined,  there  is  no  room 
for  a  contention  that  Mrs.  Thomas'  right  of  dower  does  not  exist  as 
defined  by  the  laws  of  Missouri. 

d.  At  the  time  the  Bankruptcy  Act  was  passed,  there  were  nine  States 
of  the  Union,  namely,  Connecticut,  Georgia,  Mississippi,  North  Carolina, 
Tennessee,  Vermont,  New  Hampshire,  Delaware  and  Florida,  in  which 
the  right  of  dower  applied,  not  to  real  property  of  which  the  husband 
was  seized  during  the  coverture,  but  only  to  such  real  property  as  he 
was  seized  of  at  the  time  of  his  death.  There  were  also  in  force  in 
many  States  statutes  giving  to  the  wife  a  right  in  the  nature  of  dower 
in  all  personal  property  owned  by  the  husband  at  the  time  of  his  death. 
In  all  of  these  States,  if  a  bankrupt  husband  died  while  his  proceed- 
ings were  pending,  it  might  very  well  have  been  contended  that  the 
wife's  right  of  dower  in  his  estate  did  not  exist,  because  the  legal  title 
and  possession  of  his  property  would  have  passed  to  his  trustee.  It 
was  the  view  of  Judge  ADAMS  in  the  McKenzie  case  that  the  proviso 
of  section  8  was  intended  to  prevent  such  a  result.  That  interpreta- 
tion receives  strong  support  from  the  foregoing  facts.  We  recognize, 
of  course,  that  Congress  could  not,  in  the  Bankruptcy  Act,  enlarge  the 
right  of  dower  as  defined  by  the  laws  of  the  several  States ;  and  if  the 
right  as  thus  defined  was  restricted  to  property  of  which  the  husband 
was  possessed  at  the  time  of  his  death,  Congress  could  not  give  the 
right  to  property  not  so  situated.  But,  on  the  other  hand,  the  bank- 
rupt is  dispossessed  of  his  property  by  virtue  of  the  Bankruptcy  Act, 
and  it  was  competent  for  Congress  to  define  and  restrict  the  force  and 
effect  of  that  Act.  The  trustee  in  bankruptcy  holds  for  the  benefit  of 
the  bankrupt,  as  well  as  his  creditors,  and  it  was  competent  for  Con- 
gress to  declare  that  the  title  passing  to  him  under  its  Act  should  not 
impair  the  right  of  dower  as  granted  by  the  laws  of  the  several  States. 
This  would  be  iu  harmony  with  the  general  scheme  of  the  Act  to  give 
to  the  creditors  only  that  which  would  have  belonged  to  them  if  the 
Bankruptcy  Act  had  not  been  passed,  and  to  save  to  the  bankrupt  and 
his  family  everything  that  would  have  belonged  to  them  as  against  the 
creditors  in  the  absence  of  the  Bankruptcy  Act.  If  this  be  the  correct 
interpretation  of  the  proviso,  Mrs.  Thomas'  right  of  dower  is  safe  upon 
two  grounds:  (1)  The  entire  purpose  of  the  proviso  being  to  preserve 


416  THOMAS   V.    WOODS.  [CHAP.  V. 

the  right  as  defined  by  the  laws  of  the  several  States,  that  purpose 
should  control,  and  the  last  clause  should  not  be  seized  upon  to  defeat 
it.  (2)  The  proviso  was  intended  to  apply  only  to  those  States  in 
which  the  right  of  dower  is  restricted  to  property  of  which  the  husband 
is  seized  at  the  time  of  death.  Missouri  is  not  in  that  class,  as  the 
widow's  right  of  dower  there-  extends  to  all  property  owned  by  the 
husband  during  the  coverture.  Therefore  the  proviso,  under  the  view 
of  its  meaning  which  we  are  now  considering,  could  have  no  effect 
upon  real  property  in  that  State. 

The  proviso  deals  with  two  classes  of  rights :  First,  the  widow's  right 
of  dower  in  real  property ;  second,  the  allowances  to  the  family  out  of 
the  personal  estate.  This  second  class  of  rights  is  necessarily  fixed  by 
the  laws  of  the  State  of  the  bankrupt's  residence,  for  general  rights  in 
personal  property  follow  the  person  of  the  owner  and  are  determined 
by  the  laws  of  the  State  of  hiss  residence.  The  framer  of  the  proviso 
used,  in  its  last  clause,  language  which  was  entirely  appropriate  to  the 
allowances,  and  in  part  appropriate  as  to  the  right  of  dower.  Having 
in  mind  several  classes  of  rights,  he  made  the  not  uncommon  mistake 
of  using  language  which  was  not  quite  comprehensive  enough  to  cover 
all  those  rights  under  all  conditions.  If  the  proviso  was  a  grant  of 
rights,  there  would  be  reason  in  restricting  the  rights  to  its  language ; 
but,  being  intended  to  protect  existing  rights,  it  ought  not  to  be  given 
an  interpretation  which  would  destroy  any  part  of  those  rights. 

Real  property  is  now,  especially  in  the  West,  almost  as  much  an 
article  of  trade  as  personal  property.  For  this  reason  the  right  of 
dower,  which  used  to  be  favored,  has  of  late  become  odious.  Courts, 
however,  cannot  allow  the  odiousness  of  the  right  to  lead  them  to  adopt 
a  strained  construction  of  a  statute,  for  the  purpose  of  abating  what 
may  possibly  be  regarded  as  a  commercial  nuisance.  These  are  con- 
siderations for  the  legislature  alone. 

The  case  was  disposed  of  in  the  trial  court  upon  cross-bill  and  answer, 
without  the  introduction  of  evidence.  The  only  questions  raised  were 
questions  of  law.  It  must  have  been  held  that  the  wife  of  a  resident 
of  Kansas  was  not  entitled  to  an  estate  of  dower  in  real  property  sit- 
uated in  Missouri.  We  think  that  construction  was  wrong.  But,  if 
the  interpretation  which  we  have  indicated  should  be  accepted,  it  would 
not  follow  that  Mrs.  Thomas  would  be  entitled  to  an  estate  of  dower  in 
the  property  here  involved.  If  the  averments  of  the  original  petition 
are  true,  Mr.  Thomas  held  the  property  in  trust  for  the  corporation,  and 
in  that  case  his  wife  would  not  be  entitled  to  dower  rights  therein. 

The  decree  should  be  reversed,  and  the  trial  court  directed  to  proceed 
in  accordance  with  the  views  expressed  in  this  opinion.  It  is  so  ordered. 

RINER,  District  Judge,  dissents. 


SECT.  IV.]  IN   BE   MCKENNA,  417 


IN  KE  McKENNA. 

DISTRICT  COURT  FOR  THE  WESTERN  DISTRICT  OF  TENNESSEE, 
SEPTEMBER  30,  1881. 

[Reported  in  9  Federal  Reporter,  27.] 

HAMMOND,  D.  J.  .  .  .  Whether  the  estate  that  the  bankrupt  had  in 
the  land  of  his  wife  at  the  date  of  the  filing  of  his  petition  in  bankruptcy 
passed  to  his  assignee  depends  upon  a  proper  construction  of  the  Ten- 
nessee statute.  T.  &  S.  Code,  §§  2481,  2482.  At  common  law  he 
was,  on  that  date,  a  tenant  by  the  curtesy  initiate,  and  about  the  char- 
acter of  that  precise  estate  there  has  been  much  conflict  in  the  books, 
and  much  confusion.  I  do  not,  from  authorities  consulted,  find  that  it 
has  been  ever  settled  or  agreed  upon  whether  the  husband,  before  or 
after  issue  born,  is  in  possession  of  his  estate  by  virtue  of  this  tenancy, 
or  that  which  he  has  by  virtue  of  the  marriage,  considered  irrespectively 
of  the  birth  of  issue,  or  the  possibility  of  such  birth.  Often  it  is  unim- 
portant whether  he  is  in  by  the  one  or  the  other,  but  in  the  conflicts 
that  arise  over  marriage  settlements,  grants  to  the  wife  by  deed  or  will, 
the  statute  of  limitations,  dissolutions  of  the  coverture  by  divorce,  and 
the  effect  of  conveyances  by  the  husband  and  the  wife,  one  or  both,  the 
nature  of  this  tenancy  by  the  curtesy  initiate  has  been  freely  discussed, 
but  in  some  respects  remains  unsettled.  Too  much  force  is  sometimes 
given  to  the  death  of  the  wife,  and  even  to  the  birth  of  issue,  when 
either  is  thought  to  originate  this  estate  by  the  curtesy,  and  it  is  some- 
times said,  as  it  is  argued  in  this  case,  that  prior  to  the  death  of  the 
wife  it  is  a  possibility  only,  —  something  like  the  spes  successionis  of 
the  heir  apparent  or  presumptive  to  an  estate,  that  does  not  pass  to  a 
voluntary  assignee,  or  to  an  involuntary  assignee,  by  operation  of  law. 
This  is  not  true  of  the  estate  at  any  period  from  the  moment  of  marriage 
and  seizin  of  the  wife  down  to  the  consummation  of  the  estate,  if  issue 
be  born,  b}r  her  death. 

Whether,  before  seizin  by  the  wife,  a  husband's  possible  curtesy  in 
lands  belonging  to  the  wife  would  be  assignable,  in  law  or  in  equity,  by 
treating  the  conve3-ance  as  a  covenant  to  assign,  or  not,  certainly,  from 
the  ver}'  moment  of  such  seizin,  he  becomes  a  tenant  by  the  curtesy, 
and  that  is  undoubtedly  the  initial  point  at  which  this  estate  in  the 
particular  land  vests  in  him,  no  matter  whether  it  originates  in  the 
seizin  or  the  marriage  relation.  And  from  that  moment,  although  he 
may  be  in  possession  by  virtue  of  the  marital  right,  or  jure  uxoris,  as 
it  is  sometimes  called,  he  is  also  in  possession  by  virtue  of  this  estate 
by  the  curtesy,  if  the  two  be  separable  at  all.  Some  of  the  authorities 
say  he  is  in  by  both  by  a  kind  of  remitter,  and  possibly  they  may  in 
some  sense  be  said  to  unite  or  merge  into  each  other,  though  neither 
will  destroy  or  absorb  the  other.  But,  whatever  the  distinctions  may 
be  in  this  regard,  and  however  for  all  purposes  this  matter  may  be 


418  IN   RE  MCKENNA.  [CHAP.  V. 

determined,  for  the  purpose  of  giving  effect  to  his  conveyances,  and  for 
the  purpose  of  being  subjected  to  his  debts,  it  is  vested  in  him  whenever 
the  necessary  seizin  of  the  wife  occurs.  If  he  conve}*,  or  it  be  assigned 
by  operation  of  law  after  seizin,  even  before  issue  born,  the  estate  by 
the  ciirtesy  passes,  and  his  assignee  holds,  as  he  held  it,  subject  to  be 
devested  by  the  failure  of  issue  occurring  by  the  death  of  the  wife 
without  having  given  birth  to  a  child  born  alive  ;  or,  whether  issue  be 
born  or  not,  by  the  death  of  the  husband  terminating  the  estate  in  the 
life-time  of  the  wife ;  and  in  some  peculiar  circumstances,  perhaps,  by 
other  events.  The  mistake  is  often  made  of  supposing  that  the  sur- 
vivorship of  the  wife  defeats  the  tenancy  by  the  curtes}'.  Her  survival 
has  no  such  effect.  His  death  terminates  his  life  estate  necessarily, 
whether  it  occurs  before  or  after  that  of  the  wife.  But  it  does  not  follow 
that  this  defeasible  and  determinable  character  of  the  estate  reduces  it 
to  a  bare  possibility,  or  makes  it  an  estate  called  into  being  by  the 
happening  of  a  contingency  —  either  that  of  the  birth  of  issue  or  the 
death  of  the  wife  in  the  life-time  of  the  husband.  The  husband  has,  at 
best,  only  a  life  estate,  and  of  course  his  death  ends  it,  whether  it 
happens  before  or  after  the  death  of  the  wife  ;  and  what  the  books 
mean  by  saying  that  her  death  consummates  this  tenancy  by  the  curtesj* 
is  that  from  that  time  on  there  is  no  marital  relation  furnishing  him 
any  other  right  to  possession  or  ownership  of  her  lands  than  that  which 
he  has  derived  through  this  curtesy  of  the  law.  The  death  of  the  wife 
neither  originates  nor  vests  the  estate,  but  only  consummates  or  makes 
perfect  that  which  had  been  before  originated  and  vested.  I  shall  not 
here  critically  examine  the  authorities  consulted  on  the  general  char- 
acter of  this  estate  with  a  view  of  determining  the  exact  scope  of  our 
statute,  because,  whatever  may  be  that  character,  it  is  too  well  settled 
that  it  may  be  conveyed  by  the  husband,  ma}'  be  sold  under  fieri 
facias,  and  passes  to  an  assignee  in  bankruptcy,  to  require  more  than 
a  citation  of  some  of  the  cases  on  that  point.  Gardner  v.  Hooper,  3 
Gray,  398;  Vreeland  v.  Vreeland,  1  Green,  N.  J.  Eq.  513;  Boykin 
v.  Rain,  28  Ala.  332  ;  Day  v.  Cochran,  24  Miss.  261  ;  Schermerhorn  v. 
Miller,  2  Cow.  439  ;  Gibbins  v.  Eyden,  L.  R.  7  Eq.  371  ;  Morgan  v. 
Morgan,  5  Madd.  408  ;  Follett  v.  Tyrer,  14  Sim.  125  ;  Cooper  v.  Mac- 
donald,  L.  R.  7  Ch.  Div.  288  ;  1  Bish.  Mar.  Worn.  §  489  ;  Hill.  Bank- 
ruptcy (2d  ed.),  112,  §  14.  And  in  Kesner  v.  Trigg,  98  U.  S.  50,  no 
question  was  made  but  that  the  assignee  took  the  estate  by  the  curtesy. 
The  same  principle  is  found  in  Re  Bright,  L.  R.  13  Ch.  Div.  413,  where 
a  fund  of  personal  estate  was  settled  on  the  mother  for  life,  and  after 
her  death  on  the  children  of  the  marriage,  and  it  was  held  that  the 
assignee  in  bankruptcy  of  one  of  the  children  took  his  share,  though 
the  life  tenant  did  not  die  for  nearly  ten  }-ears  after  the  bankruptcy. 

Has  our  statute  changed  this  result?  I  think  not.  Standing  alone, 
section  2481  of  the  Code  would  exempt  the  whole  estate  of  the  husband 
from  liability  for  his  debts,  and,  as  a  consequence,  b}T  operation  of  the 
bankruptcy  act  itself  (Rev.  St.  §  5045),  it  would  not  pass  to  the 


SECT.  IV.]  IN    RE   MCKENNA.  419 

assignee.  But  section  2482  of  the  Code  operates  to  restrict  the  quan- 
tity of  the  husband's  estate  that  is  exempt  to  so  much  of  it  as  is  meas- 
ured by  his  wife's  life.  He  holds  the  estate  for  his  own  life,  and  it  is 
exempt  from  execution  for  the  life  of  another,  and  therefore  not  neces- 
sarily for  his  own  life.  He  asks  here  too  much  —  more  than  this  statute 
in  terms  gives  him  —  when  he  claims  exemption  for  the  whole  estate 
by  the  curtesy  coextensive  with  his  own  life.  That  the  statute  has  not 
abridged  his  common-law  estate  by  limiting  it  to  the  life  of  his  wife  is 
plain,  because  he  claims  it  after  her  death,  and  during  his  own  life,  and 
this  he  can  do  only  on  the  theory  that  the  statute  has  not  interfered 
with  his  common-law  estate  in  this  land  in  regard  to  its  quantit}'.  If 
the  statute  has  preserved  to  him  his  tenancy  by  the  curtesy  it  has  pre- 
served it  to  his  creditors,  because  the  statute  only  cuts  them  off  during 
the  life  of  the  wife. 

It  has  been  said  in  the  books  that  a  tenancy  by  the  curtesy  stands 
somewhat  as  if  the  wife  had  made  a  lease  of  the  land  to  her  husband 
for  his  life,  the  reversion  being  in  her  or  her  heirs.  Now,  out  of  this 
estate  of  the  husband  the  statute  carves  a  portion  which  it  exempts 
from  execution,  and  that  portion  does  not  pass  to  an  assignee  in  bank- 
ruptc}' ;  not  because  of  any  peculiarity  in  the  estate  itself  as  being 
unassignable,  but  because  the  bankruptcy  laws  have  in  terms  declared 
that  property  so  exempt  shall  not  pass  to  the  assignee.  It  cannot,  then, 
I  think,  be  successfully  claimed  that  the  portion  which  we  may  call  a 
surplus  remaining  after  the  wife's  death  is  also  exempt. 

The  next  argument  to  be  considered  is  that  the  estate  now  enjoyed 
b}T  the  husband  is  subsequently  acquired  property  coming  to  him  on 
the  death  of  his  wife,  happening  since  the  petition  in  bankruptcy  was 
filed.  This,  to  my  mind,  involves  a  total  misapprehension  of  the  nature 
of  the  estate  of  tenancy  by  the  curtesy,  and  can  only  be  sustained  on 
the  theory  that  the  statute  has  created  a  new  kind  of  estate  for  the 
husband  in  his  wife's  lands,  or,  rather,  two  estates.  One  of  these, 
which  he  enjoys  during  her  life,  and  in  the  enjoyment  of  which  he  was 
when  the  petition  in  bankruptcy  was  filed,  is  claimed  as  exempt  prop- 
erty ;  and,  as  to  the  other,  that  it  was  created  for  him,  or  was  called 
into  existence  by  the  death  of  the  wife  happening  since  the  bankruptcy. 
During  his  wife's  life  this  latter  estate,  it  is  argued,  was  a  mere  possi- 
bility which  did  not  pass.  The  case  of  Jackson  v.  Middleton,  52  Barb. 
9,  is  very  much  relied  on  to  sustain  this  position.  It  should  be  read 
in  connection  with  Moore  v.  Littel,  40  Barb.  488  ;  3  Am.  Law  Reg. 
(N.  s.)  144,  where  the  same  deed  was  construed.  There  was  a  deed  to 
John  Jackson  for  his  life,  and  after  his  death  to  his  heirs  and  their 
assigns.  It  was  held  that  during  the  life  of  the  life  tenant  the  heirs 
had  "  an  alienable  contingent  estate  in  remainder,"  and  that  this  estate, 
under  a  New  York  statute  which  subjected  "  lands,  tenements,  or  here- 
ditaments "to  execution,  was  not  liable  to  that  writ.  But  a  tenancy 
by  the  curtesy,  in  my  judgment,  has  no  sort  of  analogy  to  such  an 
estate  as  the  one  mentioned  in  that  case.  If,  however,  this  be  incor- 


420  IN    RE   MCKENNA.  [CHAP.  V. 

rect,  it  is  a  sufficient,  answer  to  say  that  our  bankrupt  statute  is  much 
broader,  and  vests  in  the  assignee  all  the  estate,  real  and  personal,  of 
the  bankrupt.  Rev.  St.  §  5044.  Krumbaar  v.  Burt,  2  Wash.  406,  is 
also  relied  on,  where  it  was  decided  that,  under  the  act  of  1800,  possi- 
bilities did  not  pass.  But  our  later  acts  are  more  enlarged  in  their 
operation  ;  and  even  under  the  old  acts  this  case  was  not  approved, 
but  overruled.  Belcher  v.  Burnett,  126  Mass.  230  ;  Comegys  v.  Vasse, 
1  Pet.  193,  218;  Vasse  v.  Comegys,  4  Wash.  570;  Nash  v.  Nash,  12 
Allen,  345.  Under  the  old  English  acts,  which  were  "  very  darkly 
penned"  (Re  Marsh,  1  Atk.  158),  when  the  creditors  only  took  "all 
such  interest  in  lands  as  the  bankrupt  may  lawfully  depart  withall," 
—  Comegys  v.  Vasse,  1  Pet.  (original  edition)  200,  —  it  was  at  first 
determined  that  only  such  interests  as  were  alienable  at  law  passed  to 
the  assignee,  but  afterwards  it  was  held  that  such  as  were  assignable 
in  equit}-  also  passed ;  and  possibilities  coupled  with  an  interest  came 
to  be  regarded  as  assignable.  Our  bankruptcy  act  was  intended  to 
relieve  us  of  all  this  trouble  by  using  the  most  comprehensive  terms, 
and  there  can  be  no  doubt  that  every  character  of  property  belonging 
to  the  bankrupt  himself  passes.  Bare  possibilities  —  such,  for  instance, 
as  the  hope  that  one  has  that  his  father  or  other  relative  will  die  intes- 
tate, leaving  him  an  inheritance  —  do  not  pass  ;  but  I  cannot  see  that 
the  tenancy  by  the  curtesy,  either  at  common  law  or  under  this  statute, 
is  of  that  character. 

It  is  also  argued,  in  support  of  the  position  that  this  estate  of  the 
husband  did  not  pass,  that  "  the  assignee  in  bankruptcj-  does  not  take 
the  whole  legal  title  as  heirs  and  executors  do,  but  only  such  estate  as 
the  bankrupt  has  a  beneficial  interest  in  ; "  and  this  is  true.  If  he  has 
not  a  beneficial  interest  in  a  tenancy  by  the  curtesy  initiate,  it  is  diffi- 
cult to  see  why  he  has  not.  He  has  not  so  great  benefit  under  the  stat- 
ute as  he  had  at  common  law,  for  there  are  restrictions  on  his  powers 
of  alienation  and  restrictions  on  the  right  of  his  creditors  to  subject 
his  interest  to  their  debts  ;  but  in  neither  respect  has  his  interest 
been  wholly  demolished,  and  the  assignee  only  claims  by  this  petition 
that  beneficial  interest  which  the  statute  left  to  him.  This  above- 
quoted  formula  is  often  found  in  the  authorities,  but  I  do  not  find  that 
it  has  ever  been  applied  to  save  to  the  bankrupt  any  property  that  be- 
longed to  him,  but  only  such  as  belonged  to  third  persons  and  which 
was  held  by  him  under  some  kind  of  trust  relation.  In  the  earlier  stages 
of  bankruptcy  legislation,  when  the  statutes  were  not  so  elaborate  as 
now,  it  was  a  principle  resorted  to  and  established  by  the  courts  to  save 
to  third  persons  their  rights  in  property  which  the  bankrupt  held  for 
them,  and  to  prevent  the  devolution  of  such  trusts  on  the  assignee, 
who  did  not  become  a  general  administrator  of  the  bankrupt's  legal 
and  equitable  powers  over  all  property,  doing  in  his  stead  for  others 
what  the  bankrupt  was  required  to  do,  but  was  restrained  in  his  title 
to  the  property  of  the  bankrupt  which  creditors  could  apply  to  their 
debts.  The  assignee,  for  example,  takes  subject  to  a  wife's  right  of 


SECT.  IV.]  IN    RE   MCRENNA.  421 

dower,  to  her  right  of  survivorship  ;  subject  to  her  right  to  an  equitable 
settlement ;  subject  to  all  defeasances  and  contingencies  in  her  favor, 
or  in  favor  of  any  third  person,  for  that  matter ;  subject  to  the  liens 
of  a  mechanic,  or  a  factor,  or  the  like  ;  subject  to  the  right  of  rescission 
of  a  contract  for  fraud,  in  some  instances;  subject  to  the  estoppels  on 
the  bankrupt,  where  they  do  not  grow  out  of  some  fraud  on  creditors ; 
and,  generally,  subject  to  all  trusts,  liens,  and  burdens  existing  at  the 
time.  In  some  cases  the  circumstances  were  such  the  assignee  took 
nothing,  and  in  some  only  the  surplus  after  the  burdens  were  satisfled. 
Brown  v.  Heathcote,  1  Atk.  160;  Scott  v.  Snrman,  Willes,  400;  Mit- 
ford  v.  Mitford,  9  Ves.  87  ;  Re  Dow,  6  N.  B.  R.  10  ;  Rogers  v.  Winsor, 
Id.  246;  Re  McKay,  1  Low.  345;  Re  Faxon,  Id.  404;  Re  Griffiths, 
Id.  431  ;  Goddard  v.  Weaver,  1  Woods,  257 ;  Re  Hester,  5  N.  B.  R. 
285  ;  Eberle  v.  Fisher,  13  Pa.  St.  526  ;  Eshelman  v.  Shuman,  Id.  561 ; 
Keller  v.  Denmead,  68  Pa.  St.  449;  Ontario  Bank  v.  Mum  ford,  2  Barb. 
Ch.  596. 

Here,  again,  our  bankruptcy'  statutes  have  recognized  and  declared 
this  principle,  and  provide  that  no  trust  estates  shall  pass,  and  that  all 
liens  and  rights  of  third  persons  shall  be  preserved,  so  that  the  assignee 
either  does  not  take  at  all,  or  else  takes  subject  to  the  liens  and  burdens. 
Rev.  St.  5053,  5075,  5044,  and  notes;  Bump,  Bankruptcy  (10th  ed.). 
Applying  the  principle  here,  the  assignee  took  the  tenancy  bj*  the 
curtesy  initiate  as  it  existed  at  the  date  of  the  petition  in  bankruptcy, 
subject  to  the  right  of  the  wife,  if  she  survived  her  husband,  to  defeat 
his  estate ;  or,  more  accurately,  subject  to  the  determination  that  would 
come  by  his  death,  and  subject  to  her  rights  under  this  Tennessee 
statute  to  remain  in  possession  during  her  life,  jointly  with  her  husband, 
and  that  they  should,  during  that  time,  enjoy  the  estate  without  dis- 
turbance by  his  creditors  or  his  assignees  of  an}-  kind,  whether  in 
bankruptcy  or  any  other,  unless  she,  by  her  deed  according  to  law, 
should  consent  to  give  up  the  land.  And  it  is  possible  that,  by  joint 
deed  of  the  husband  and  wife,  the  assignee's  title  might  have  been  de- 
feated, even  after  the  bankruptcy,  in  the  same  way  as  is  sometimes 
done  where  she  has  a  power  of  appointment;  but  it  is  not  necessary 
to  decide  that  here,  as  no  such  conveyance  was  made,  and  it  is  well 
settled  that  where  she  has  the  power  to  defeat  his  estate  by  appoint- 
ment or  conveyance  of  any  kind,  her  failure  to  exercise  it  preserves  his 
rights.  The  statute  operates  as  a  settlement  upon  her  to  that  extent, 
but  no  further.  And  it  is  to  be  observed  that  it  does  not,  as  some 
statutes  do,  create  a  separate  estate  in  the  wife,  nor  destroy  his  estate 
in  his  wife's  lands,  either  that  he  holds  jure  uxoris,  or  the  larger  estate 
of  tenancy  by  the  curtesy. 

It  is  always  a  question  of  intention  whether  the  legislature  has,  by 
such  statutes  as  these,  cut  off  the  husband's  marital  rights  entirely  or 
only  partially  ;  and  they  are  construed,  just  as  wills,  deeds,  marriage 
settlements,  and  other  conveyances  are,  to  go  no  further  in  that  direc- 
tion than  the  language  used,  in  terms  or  by  necessary  implication,  re- 


422  IN  RE  M°KENNA.  [CHAP.  v. 

quires.  This  construction  I  have  given  the  statute  is  supported  by 
ever}'  Tennessee  case  which  has  construed  or  mentioned  it.  Johnson 
v.  Sharp,  4  Cold.  45 ;  Dodd  v.  Benthal,  4  Heisk.  601  ;  Bottoms  v. 
Corley,  5  Heisk.  1  ;  Corley  v.  Corley,  8  Bax.  7 ;  McCallum  v.  Petigrew, 
10  Heisk.  394 ;  Lucas  v.  Rickerich,  1  Lea,  726  ;  Young  v.  Lea,  3  Sneed, 
249  ;  Coleman  v.  Satterfield,  2  Head,  259  ;  Gillespie  v.  Worford,  2 
Cold.  632  ;  Aiken  v.  Suttle,  4  Lea,  103. 

It  is  also  supported  by  the  cases  construing  settlements  on  the  wife 
by  will  or  deed,  where  the  benefits  conferred,  the  language  used,  and 
the  restrictions  on  alienation  and  the  husband's  marital  rights  are  simi- 
lar to  those  in  this  statute.  Brown  v.  Brown,  6  Humph.  126  ;  Hamrico 
v.  Laird,  10  Yerg.  222  ;  Frazier  v.  Hightower,  12  Heisk.  94  ;  Baker  u. 
Heiskell,  1  Cold.  641  ;  Appleton  v.  Rowley,  L.  R.  8  Eq.  139  ;  Marshall 
v.  Beall,  6  How.  70  ;  Moore  v.  Webster,  L.  R.  3  Eq.  267  ;  Bennet  v. 
Davis,  2  P.  Wms.  316;  Eden,  Bankruptcy,  245  ;  25  Law  Lib.  193. 

It  also  finds  a  complete  analogy  in  the  construction  of  our  homestead 
statutes,  which  confer  a  similar  benefit  on  the  husband,  wife,  and  chil- 
dren, and  yet  it  is  held  that  creditors  may  subject  the  husband's  in- 
terest, subject  to  this  right  of  occupancy  and  possession  by  the  family, 
which  may  last  during  the  life  of  the  husband  and  wife  or  the  survivor, 
and  until  the  youngest  child  reaches  a  certain  age.  Moore  v.  Hervey, 
1  Leg.  Rep.  (Tenn.)  22  ;  Mash  v.  Russell,  1  Lea,  543  ;  Lunsford  v. 
Jarrett,  2  Lea,  579;  Gilbert  v.  Cowan,  3  Lea,  203;  Gray  v.  Baird, 
4  Lea,  212  ;  Jarman  v.  Jarman,  Id.  671,  676.  In  Mash  v.  Russell, 
supra,  it  is  said,  "  the  vendee  is  clothed  with  the  legal  title  in  reversion 
expectant  on  the  termination  of  the  homestead  estate,"  which  quite  as 
accurately  describes  the  kind  of  estate  the  assignee  took  in  this  case. 

The  same  ruling  has  been  made  in  other  States  where  the  statutes 
give  a  qualified  homestead  exemption,  while  in  those  where  the  exemp- 
tion is  absolutely  of  the  whole  estate,  the  assignee  takes  nothing.  Rix 
v.  Capitol  Bank,  2  Dill.  367  ;  Re  Tertelling,  Id.  339  ;  Re  Betts,  15 
N.  B.  R.  537  ;  Johnson  v.  May,  16  N.  B.  R.  425  ;  Re  Watson,  2  N.  B.  R. 
570;  Re  Poleman,  5  Biss.  526;  McFarland  v.  Goodman,  6  Biss.  Ill; 
Re  Hinkle,  2  Sawy.  305;  Re  Hunt,  5  N.  B.  R.  493;  Re  Vogler, 
8  N.  B.  R.  132;  Re  Sinnett,  4  Sawy.  250. 

It  also  finds  support  in  the  cases  construing  statutes  of  this  and 
other  States  for  the  benefit  of  married  women  or  their  families.  Cooper 
v.  Maddox,  2  Sneed,  135;  Lyon  v.  Knott,  26  Miss.  548;  Rabb  v, 
Griffin,  Id.  579;  Stewart  v.  Ross,  54  Miss.  776;  Hatfield  v.  Sneden, 
54  N.  Y.  280 ;  Re  Winne,  1  Lans.  508 ;  s.  c.  2  Lans.  21 ;  Thompson 
v.  Green,  4  Ohio  St.  216,  232  ;  Plumb  v.  Sawyer,  21  Conn.  351 ;  Silsby 
v.  Bullock,  10  Allen,  94;  Staples  v.  Brown,  13  Allen,  64;  Walsh  v. 
Young,  110  Mass.  396,  399. 

Upon  consideration  of  these  authorities  it  will  be  found  to  be  a  gen- 
eral principle  that,  whether  the  settlement  is  made  by  statute,  deed, 
will,  or  contract,  the  husband's  marital  rights  are  not  interfered  with 
further  than  the  terms  of  the  settlement  go,  and  that  what  remains  to 


SECT.  IV.]  IN   RE    MCKENNA.  423 

him  can  be  subjected  by  his  creditors  as  if  the  settlement,  had  not  been 
made ;  and  it  is  as  well  settled  as  it  is  possible  to  be  that  the  circum- 
stance that  the  wife  is  to  receive  the  rents  or  profits  or  to  enjoy  the 
estate  during  her  life,  or  that  the  husband  is  forbidden  to  convey  it 
except  with  her  consent,  or  that  she  may  alone  or  jointly  with  him  con- 
vey it  or  defeat  the  husband's  estate  b}-  appointment  by  will  or  other- 
wise, will  not,  nor  will  any  of  them  combined,  alter  the  construction  so 
as  to  affect  or  defeat  his  marital  rights,  nor  the  estate  of  his  assignee 
or  purchaser,  except  strictly  according  to  the  terms  of  the  settlement. 
If  an  estate  remains  to  him  after  her  death  as  the  residuum  of  what  he 
would  have  had  but  for  the  settlement,  his  creditors  may  subject  it,  and 
it  passes  by  his  deed  subject  to  be  defeated  if  she  survives  or  dies  with- 
out exercising  her  powers  of  alienation. 

Finally,  there  is  an  unreported  case  in  this  court,  in  He  Stack,  a 
bankrupt  (June,  1879),  in  which  the  circuit  judge,  sitting  for  the  dis- 
trict judge,  who  was  incompetent,  upon  the  same  principle  decided  in 
favor  of  the  assignee.  The  wife  of  the  bankrupt,  under  a  deed  from 
him,  held  land  to  her  "  sole  and  separate  use  and  benefit,  free  from  the 
debts,  liabilities,  and  control  of  her  present  or  any  future  husband,  with 
power  to  sell,  b}~  joint  deed  with  her  husband,  for  reinvestment  on  same 
trusts,  and  if  she  should  die  in  the  life-time  of  her  husband  then  to  re- 
vert to  him  in  fee-simple."  The  estate  of  her  husband  was  not  men- 
tioned in  the  schedules  of  the  bankrupt,  as  in  this  case,  he  deeming  it 
secure  from  the  operation  of  the  bankrupt  law,  and  the  wife  died  pend- 
ing the  proceedings  in  bankruptcy,  as  here,  whereupon  the  assignee 
filed  a  petition,  like  that  in  this  case,  and  the  court  compelled  the 
bankrupt  to  surrender  the  land  to  the  assignee.  Under  this  deed  the 
wife  had  all  the  protection  she  would  have  had  under  this  statute,  and 
a  larger  estate  than  she  would  have  had  if  she  had  inherited  the  land 
or  held  it  by  an  ordinary  conveyance.  Besides,  the  land  itself  was,  at 
the  date  of  the  petition  in  bankruptc}*,  under  the  protection  of  this 
statute,  both  as  to  the  interest  of  the  wife  and  that  of  the  husband. 
And,  as  to  his  interest,  the  only  difference  I  can  see  is  that  there  he 
had  a  reversionary  estate  in  fee-simple,  contingent  upon  his  surviving 
his  wife,  but  liable  to  be  defeated  also  by  their  joint  deed  (leaying  out 
the  reinvestment  clause),  while  here  the  bankrupt  had  a  life  estate, 
subject  to  the  same  contingencies.  It  was  ruled  that  this  estate  was 
vested  at  the  time  of  the  bankruptcy,  and  did  not  vest  at  the  death 
of  the  wife,  and  was,  therefore,  not  subsequently  acquired  propert}'. 
Furthermore,  the  ruling  must  have  been  the  same  in  that  case  if  Stack 
had  had  no  contingent  reversionary  interest  under  the  deed,  and  it 
had  appeared  there  was  issue  of  the  marriage,  for  he  was,  in  that  event, 
a  tenant  by  curtesy,  notwithstanding  this  was  a  separate  estate,  and 
would  have  held  the  land  for  his  life,  unless  it  may  be  the  words  "  free 
from  the  debts,  liabilities,  or  control  of  any  future  husband  "  should  be 
construed  to  entirely  cut  off  his  (Stack's)  curtesy.  I  do  not  see  any 
difference  in  principle  between  that  case  and  this,  because  if  Stack  had 


424  HESSELTINE    V.   PRINCE.  [CHAP.  V. 

under  that  deed  such  an  interest  as  passed  to  his  assignee  during  the 
life  of  his  wife,  subject  to  her  rights  under  the  deed  and  this  statute,  I 
do  not  see  why  the  bankrupt  here  did  not  have,  by  the  common  law 
regulating  the  tenancy  by  the  curtesy,  such  an  interest  in  his  life  estate 
as  passed,  subject  to  the  rights  of  his  wife  and  his  own  under  the 
statute. 

The  objection,  in  this  view  of  the  case,  that  the  children  of  the  wife 
are  not  parties  to  this  proceeding,  is  not  tenable.  The  assignee  only 
claims  the  life  estate  of  the  bankrupt,  and  in  this  the  children  have  no 
interest.  Motion  overruled.1 


HESSELTINE  v.  PRINCE  ET  AL. 

DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS,  JULY  6,  1899. 
[Reported  in  95  Federal  Reporter,  802.] 

LOWELL,  District  Judge.  This  was  a  bill  in  equit}-  filed  in  the  Dis- 
trict Court,  under  the  provisions  of  the  bankrupt  law,  to  reach  the 
interest  of  a  husband,  after  the  birth  of  issue,  in  the  real  estate  of 
which  his  wife  is  seised  ;  the  wife  being  still  alive.  The  defendant 
raised  no  objection  to  the  jurisdiction  of  the  court  or  to  the  form  of 
proceeding,  but  demurred  to  the  bill  for  want  of  equit\".  It  is  neces- 
sary, therefore,  to  determine  if  the  right  of  the  husband,  whether  it  be 
properly  described  as  tenancy  by  the  curtesy  initiate,  or  otherwise, 
passes  to  the  trustee  in  bankruptc}*,  under  the  present  law.  The  rights 
of  the  husband  in  the  property  of  his  wife  are  limited  by  the  statutes 
of  Massachusetts,  and  this  court  is  governed  b}-  the  interpretation  put 
upon  those  statutes  by  the  Supreme  Court  of  the  Commonwealth.  In 
Lynde  v.  McGregor,  13  Allen,  182,  184,  it  was  said  by  Mr.  Justice 
Gray  that  "  these  statutes  are  inconsistent  with  the  hypothesis  tluit 
the  husband  has  any  estate  in  his  wife's  land  which  he  can  convey 
separately  during  her  lifetime,  or  which  will  pass  to  his  assignees  in 
insolvency."  The  insolvent  law  of  Massachusetts  (Gen.  St.  c.  118, 
§  44)  vested  in  the  assignee  in  insolvency  all  the  property  of  the  debtor 
which  the  latter  could  have  lawfully  s»ld,  assigned,  or  conveyed.  This 
language  is  as  broad  as  that  of  section  70  (5)  of  the  bankrupt  act,  and 
hence  it  must  be  taken  that  the  husband's  right  in  his  wife's  real  estate 
above  described  does  not  pass  to  the  trustee  in  bankruptc}-.  See,  also, 
Walsh  v.  Young,  110  Mass.  396,  399.  Section  (70)  3  was  relied  upon 
in  argument  by  counsel  for  the  trustee ;  but,  however  the  husband's 

1  In  Gibbins  v.  Eyden,  L.  R.  7  Eq.  371,  it  was  held  where  the  wife  of  a  bankrupt 
had  a  vested  remainder  in  real  estate  which  did  not  fall  into  possession  until  after  the 
husband's  discharge,  that,  though  there  had  been  issue,  the  assignees  were  not  entitled 
to  the  husband's  rights.  "  There  can  be  no  inchoate  right  to  curtesy  till  the  wife  be- 
comes entitled  to  an  estate  of  inheritance  in  possession." 


SECT.  IV.]  HIGDEN   V.   WILLIAMSON.  425 

right  in  his  wife's  real  estate  should  be  described,  it  certainly  is  not  a 
power.  Demurrer  sustained,  and  bill  dismissed,  with'  costs  against 
the  estate. 


HIGDEN   ET   AL   v.  WILLIAMSON. 
IN  CHANCERY,  MICHAELMAS  TERM,  1731. 

[Reported  in  3  Peere   Williams,  132.] 

A.  SEISED  in  fee  of  a  copyhold  estate,  surrendered  the  premises  to 
the  use  of  his  will,  and  afterwards  devised  them  to  his  daughter  for 
life,  then  to  trustees  to  be  sold,  and  the  money  arising  by  the  sale  to 
be  divided  amongst  such  of  his  daughter's  children  as  should  be  living 
at  the  time  of  her  death.  The  testator  died,  and  the  daughter  had 
issue  (among  others)  a  son,  who  was  a  trader,  and  becoming  a  bank- 
rupt, the  commissioners  assigned  over  all  the  bankrupt's  estate.  The 
bankrupt  got  his  certificate  allowed,  and  then  his  mother  died. 

On  a  bill  brought  by  the  assignees  for  the  bankrupt's  share  of  the 
money  arising  by  the  sale,  it  was  objected,  that  no  manner  of  right  to 
this  contingent  interest  was  vested  at  the  time  of  the  assignment  made 
by  the  commissioners,  any  more  than  a  right  to  lands  can  be  said  to 
vest  in  an  heir  apparent  during  the  life  of  his  ancestor;  and  the  case 
of  Jacobson  v.  Williams  was  cited,  where  it  was  held  by  the  Lord 
Cowper,  that  the  possibility  of  a  right  belonging  to  a  bankrupt  was 
not  assignable. 

But  his  Honor,1  upon  debate,  decreed  for  the  plaintiffs,  distinguish- 
ing the  principal  case  from  that  of  Jacobson  v.  Williams  ;  for  there  the 
husband,  the  bankrupt,  could  not  have  come  at  his  wife's  portion  by 
the  aid  of  equity,  without  making  some  provision  for  her ;  and  it  was 
not  reasonable  the  assignees,  who  stood  but  in  his  place,  and  derived 
their  claim  from  him,  should  be  more  favored.  Also  the  Master  of  the 
Rolls  said,  he  laid  his  finger,  and  chiefly  grounded  his  opinion,  on  the 
words  of  the  statute  of  13  Eliz.  cap.  7.  §  2,  which  enacts,  "that  the 
commissioners  shall  be  empowered  to  assign  over  all  that  the  bank- 
rupt might  depart  withal."  Now  here  the  son  might,  in  his  mother's 
lifetime  have  released  this  contingent  interest ;  so  that  the  commis- 
sioners, by  virtue  of  that  act,  are  enabled  to  assign  it,  and  consequently 
their  assignees  must  be  well  entitled. 

Note:  in  Michaelmas,  1732,  this  cause  came  on  by  way  of  appeal 
before  the  Lord  Chancellor  KING,  who  affirmed  the  decree  at  the  Rolls, 
partly  for  the  reason  before  given,  viz.,  because  the  bankrupt  himself 
might  have  departed  with  this  contingent  interest;  also,  for  that  the 
act  of  21  Jac.  1.  cap.  19,  §  1,  declares,  that  the  statutes  relating  to 

1  Sir  JOSEPH  JEKTLL,  M.  R. 


426  IN  RE  VIZARD'S  TRUSTS.  [CHAP.  v. 

bankrupts  shall  in  all  things  be  largely  and  beneficially  expounded  for 
the  relief  of  creditors ;  and  further,  because  the  statutes  for  discharg- 
ing bankrupts  on  certificates,  never  intended  to  entitle  the  bankrupt 
to  any  estate  by  virtue  of  an}-  claim  anterior  (as  his  Lordship  expressed 
it)  to  his  bankruptcy,  as  the  title  in  question  clearly  was ;  besides,  the 
word  "  possibility"  is  in  all  the  latter  statutes  touching  bankrupts.1 


IN  RE  VIZARD'S   TRUSTS. 

IN  CHANCERY,  MAY  29-JuLY  14,  1866. 

[Reported  in  1  Chancery  Appeals,  588.] 

THIS  was  an  appeal  from  a  decision  of  Vice-Chancellor  Stuart,  who 
had  held  that  the  share  of  F.  Vizard  in  certain  property  did  not  pass 
under  a  deed  of  assignment  for  the  benefit  of  his  creditors. 

Under  the  will  of  George  Vizard,  the  property  in  question  stood 
limited  to  his  widow  for  life,  and  after  her  death  to  all  and  ever}',  or 
such  one  or  more  of  the  children  of  his  late  brothers,  John  Vizard  and 
Charles  Vizard,  and  the  issue  of  such  children  as  should  be  dead,  in 
such  shares  and  proportions,  and  in  such  manner  and  form,  as  the 
widow  should  by  deed  or  will  appoint ;  and,  in  default  of  appointment, 
he  gave  one  moiety  to  the  children  of  John  Vizard,  as  tenants  in  com- 
mon, and  the  other  moiety  to  the  children  of  Charles  Vizard,  as  tenants 
in  common. 

In  November,  1861,  Frederick  Vizard,  one  of  the  children  of 
Charles,  assigned  all  his  property  to  a  trustee  for  his  creditors,  by  a 
deed  in  the  form  given  in  Schedule  D  to  the  Bankruptcy  Act,  1861. 
This  deed  was  duly  registered  under  the  Act.  He  never  obtained  any 
order  of  discharge. 

In  1864  the  widow  made  a  will,  by  which  she,  in  exercise  of  her 
power,  appointed  one  moiety  of  the  property  to  the  children  of  John, 
equally,  and  the  other  moiety  to  the  children  of  Charles,  equally.  The 
children  of  John  and  Charles  all  survived  her. 

The  widow  having  died,  the  question  now  was,  whether  the  share 
of  F.  Vizard  went  to  him  or  to  the  trustee  of  the  deed.  Vice-Chan- 

1  Re  St.  John,  3  N.  B.  N.  114;  Nash  v.  Nash,  12  Allen,  345;  Belcher  v.  Burnett, 
126  Mass.  230;  Putnam  v.  Story,  132  Mass.  205;  Re  Bobbins'  Estate,  49  At.  Rep. 
233  (Pa.).  See  also,  Jones  v.  Roe,  3  T.  R.  88  ;  Kinzie  o.  Winston,  56  111.  56  ;  Roe  v. 
Humphreys,  I  Yeates,  427  ;  Whelen  i;.  Phillips,  151  Pa.  312.  But  see  contra,  Krum- 
baar  v.  Burt,  2  Wash.  C.  C.  406 ;  Re  Hoadley,  101  Fed.  Rep.  233 ;  Re  Gardner,  106 
Fed.  Rep.  670;  Re  Wetmore,  102  Fed.  Rep.  290,  108  Fed.  Rep.  520  (C.  C.  A.). 
See  also  Re  Twaddell,  110  Fed.  Rep.  145,  and  the  New  York  decisions  cited  in 
Re  Hoadley. 

As  to  the  validity  of  estates  defeasible  upon  bankruptcy,  and  the  possibility  of  creat- 
ing equitable  life  estates  which  cannot  be  made  subject  to  the  payment  of  the  bene- 
ficiary's debts,  see  Gray,  Restraints  on  Alienation  (2d  ed.)  §§  149-268. 


SECT,  iv.]  IN  RE  VIZARD'S  TRUSTS.  427 

cellor  STUART  decided  in  F.  Vizard's  favor  (Law  Rep.  1  Eq.  667),  and 
the  trustee  appealed. 

Mr.   Malins,  Q.  C.,  and  Mr.  John  Pearson,  for  the  appellant. 

Mr.  Bacon,  Q.  C.,  and  Mr.  Chapman  Barber,  for  the  respondent. 

Sir  G.  J.  TURNER,  L.  J.,  after  stating  the  facts,  continued  :  — 

The  appellant's  claim  was  not  attempted  to  be  rested  upon  the  ground 
that  the  mere  possibility  of  interest  which  Frederick  Vizard  had  at  the 
time  of  the  execution  of  the  deed,  in  respect  of  his  being  one  of  the 
objects  of  the  power  to  whom  an  appointment  might  thereafter  be 
made,  passed  to  the  appellant  by  deed.  It  was  not  contended  that  such 
a  mere  possibility  of  interest  could  be  considered  to  form  part  of  Fred- 
erick Vizard's  estate  and  effects,  or  could  be  held  to  pass  by  the  deed, 
and  Carlton  v.  Leighton,  3  Mer.  667,  is  strong  to  show  that  it  could 
not ;  but  it  was  insisted  on  the  part  of  the  appellant  that  whatever  F. 
Vizard  took,  he  took  under  the  will  of  the  testator,  and  that  the  ap- 
pointment did  not  displace  or  alter  the  interest  which  he  took  under 
the  will  in  default  of  appointment,  and  which  had  passed  to  the  appel- 
lant by  the  deed,  the  power  being,  as  it  was  said,  a  power  of  selection 
only.  I  think,  however,  that  the  power  in  this  case  was  something 
more  than  a  power  of  selection.  It  was  a  power  to  distribute,  no  less 
than  to  select,  and  it  enabled  an  appointment  to  be  made  in  favor  of 
persons  who  would  not  take  in  default  of  appointment,  and,  certainly, 
I  am  not  satisfied  that  the  execution  of  the  power  of  appointment  was 
not  of  itself  sufficient  to  defeat  the  limitations  in  default  of  appointment 
contained  in  the  testator's  will,  but  it  is  not,  in  my  opinion,  necessary 
to  decide  this  point,  for  I  think  that  the  interest  of  F.  Vizard  was 
altered  by  the  exercise  of  the  power.  Under  the  will  of  the  testator, 
supposing  the  power  not  to  have  been  exercised,  he  took,  upon  the  tes- 
tator's death,  a  vested  interest  in  one-fifth  of  a  moiety  of  the  property 
in  question,  but  under  the  exercise  of  the  power,  his  interest,  as  I  ap- 
prehend, became  contingent  on  his  surviving  the  widow  ;  for,  according 
to  the  case  of  The  Duke  of  Marlborough  v.  Lord  Godolphin,  2  Ves. 
Sen.  61,  the  dispositions  made  by  the  widow,  though  imported  into  the 
will  of  the  testator,  would  take  effect  only  at  her  death,  and  there 
would  be  a  lapse,  therefore,  if  he  died  in  the  widow's  lifetime,  although 
he  had  survived  the  testator.  The  mere  fact  of  his  having  in  the  result 
survived  the  widow,  could  not,  as  I  apprehend,  alter  this.1 

1  A  portion  of  the  opinion  in  which  it  was  held  that  property  acquired  after  bank- 
ruptcy did  not  pass  to  the  trustee  for  creditors,  is  omitted.  Sir  J.  L.  KNIGHT  BRUCE, 
L.  J.,  who  was  also  sitting,  gave  no  opinion. 

Sue  Re  Wetmore,  106  Fed.  Rep.  670,  108  Fed.  Rep.  520. 


428  IN  RE  BECKER.  [CHAP.  v. 


MOTH   v.   FROME. 

IN  CHANCERY,  FEBRUARY  26,  1761. 

[Reported  in  I  Ambler,  394.] 

GEORGE  BELL,  brother  of  Mary  Moth,  and  Margaret  Wade,  the 
plaintiffs,  upon  his  marriage  with  Anne  Frome,  conveyed  a  freehold 
estate  in  Middlesex  and  Berks  to  himself  for  life,  remainder  to  Anne 
for  life,  remainder  to  the  children  as  the}7  should  appoint ;  and  for  want 
of  appointment,  to  the  first  and  other  sons  in  tail  male,  remainder  to 
daughters,  reversion  in  fee  to  himself.  The  husband  and  wife  died 
without  making  any  appointment,  leaving  two  children,  Anne  and 
Thomas. 

22d  November,  1758,  Margaret  Wade  became  a  bankrupt,  and  in 
February,  18o9,  obtained  her  certificate,  and  in  June,  1760,  both  the 
children  died,  so  that  the  two  plaintiffs  became  co-heirs  to  Thomas, 
who  survived  his  sister. 

And  the  question  was,  Whether  Margaret's  part  of  the  freehold 
estate  should  not  go  to  the  assignees  as  a  possibility,  according  to  the 
words  of  5  Geo.  II.  which  are  very  strong? 

MASTER  OF  THE  ROLLS.1  This  is  not  that  kind  of  possibility  ;  there 
must  be  a  persona  designata,  Higdenv.  Williamson,  3  Wms.  132,  which 
was  the  occasion  of  the  act.  It  must  be  a  possibility  that  can  be  as- 
signed or  released,  such  as  she  can  disclose  upon  her  examination. 

Decree  for  the  bankrupt. 


IN  RE   BECKER. 

DISTRICT  COURT  FOR  THE  EASTERN  DISTRICT  OF  PENNSYLVANIA, 
DECEMBER  16,  1899. 

[Reported  in  98  Federal  Reporter,  407.] 

McPHERSON,  District  Judge.  Whatever  may  be  the  accurate  de- 
scription of  a  license  to  sell  intoxicating  liquor  in  Pennsylvania,  — 
whether  it  be  a  personal  privilege,  merely,  or  a  personal  privilege  and 
something  more,  —  this  much,  at  least,  is  certain :  it  has  a  money 
value,  varying  in  different  places,  and  for  different  reasons.  The  stat- 
utes of  the  State  permit  a  license  to  be  transferred,  subject  to  the  ap- 
proval of  the  court  of  quarter  sessions;  and  I  regard  it,  therefore,  as 
so  far  property,  "  which  prior  to  the  filing  of  the  petition  [a  bankrupt] 
could  by  any  means  have  transferred,"  that  the  right  to  sell  it  (I  do 
not  say  the  right  to  exercise  it)  will  pass  to  the  trustee.  No  doubt, 

1  Sir  THOMAS  CLABKE. 


SECT.  IV.]  IN    RE    BECKER.  429 

there  is  clearly  visible  distinction  between  a  right  to  property  and  a 
mere  personal  privilege  ;  but  I  see  no  abstract  reason  why  some  per- 
sonal privileges  may  not  also  come  to  have  qualities  belonging  usually 
to  property  rights  alone,  —  such,  for  example,  as  capacity  to  be  trans- 
ferred, and  sufficient  attractiveness  to  make  other  persons  willing  to 
pay  money  for  the  opportunity  to  acquire  them.  Where,  as  in  the  case 
of  a  license  to  sell  liquor,  these  qualities  are  found  to  exist  in  fact,  it 
seems  to  me  that  the  privilege  has  ceased  to  be  a  privilege  merely,  and 
has  become,  in  some  sense  and  in  some  degree,  property  also.  It  can 
hardly  be  correct  to  hold  that  a  bankrupt's  creditors  may  not  avail 
themselves  of  the  fact  that  money  can  be  had  for  the  chance  of  step- 
ping into  the  licensee's  place,  but  that  the  bankrupt  himself  may  make 
the  same  bargain,  and  put  the  money  safely  into  his  pocket.  The 
license  court  may  or  may  not  accept  the  buyer  as  the  bankrupt's  suc- 
cessor. That  is  the  buyer's  affair,  and  is  not  decisive  upon  the  point 
now  being  considered.  He  buys  a  contingency,  and  buys  it  with  his 
eyes  open  ;  but  in  my  opinion,  the  trustee  has  the  contingency  to  sell, 
and  the  bankrupt  is  bound  to  execute  the  instruments  necessary  to 
carry  out  the  sale.1 

In  the  case  now  before  the  court  the  sale  was  made,  not  by  a  trustee, 
but  by  a  receiver  ;  and  objection  is  raised  to  a  receiver's  power  to  sell  the 
propert}'  of  the  bankrupt.  The  objection  is  based  upon  the  language  of 
clause  3  of  section  2,  which  authorizes  courts  of  bankruptcy  to  appoint 

1  Re  Doyle,  209  Fed.  1  (C.  C.  A.),  and  cases  therein  cited,  ace. 

The  following  rights  have  been  held  to  pass  to  an  assignee  or  trustee  in  bank- 
ruptcy :  — 

A  license  to  occupy  a  stall  in  a  city  market  passes.  Re  Gallagher,  16  Blatch.  410; 
Re  Emrich,  101  Fed.  Rep  230 

A  seat  in  a  stock  exchange  or  produce  exchange:  Hyde  v.  Woods,  94  U.  S.  523 ;  Spar- 
hawk  v  Yerkes,  142  U.  S.  12  ;  Page  v.  Edmunds,  18?"  U.  S.  596;  Re  Warder,  10  Fed. 
275  ;  Re  Werder,  15  Fed.  Rep.  789 ;  Re  Page,  107  Fed.  Rep.  89  (C.  C.  A.  ) ;  Powell  v. 
Waldron,  89  N.  Y.  328  ;  Platt  o.  Jones,  96  N.  Y.  24;  which  wholly  discredit  contrary 
decisions  or  implications  in  Re  Sutherland,  6  Biss.  526 ;  Barclay  v.  Smith,  107  111. 
349 ;  Thompson  v.  Adams,  93  Pa.  55 ;  Pancoast  v.  Gowen,  93  Pa.  66. 

A  franchise  to  build  a  railroad.  New  Orleans,  &c.  R.  R.  Co.  v.  Delamere,  1 14  U.  S. 
501. 

A  right  in  an  office,  if  of  a  kind  which  the  law  permits  to  be  assigned.  Ex  parte 
Butler,  1  Atk.  210. 

The  goodwill  of  a  business.  Cruttwell  v.  Lye,  17  Ves.  336 ;  Ex  parte  Thomas,  2  Mont. 
D.  &  De  G  294 ;  Hudson  ».  Osborne,  21  L.  T.  N.  s.  386 ;  Walker  v.  Mottram,  19  Ch. 
D.  355.  But  not  so  far  as  to  prevent  a  bankrupt  from  subsequently  doing  business  in 
his  own  name  and  soliciting  trade  from  his  former  customers.  See  cases  above  cited 
and  Ginesi  v.  Cooper,  14  Ch.  D  596,  600 ;  Hembold  v.  Hembold  Co.,  53  How.  Pr.  453. 

A  Pateut-ritfht :  Barton  v.  White,  144  Mass.  281;  copyright:  Mawmau  v.  Tegg, 
2  Russ.  385,  392  ;  trade-name  or  trade-mark :  Longman  v.  Tripp,  2  B.  &  P.  N.  R.  67  ; 
Ex  parte  Foss,  2  l)e.  G  &  J.  230 ;  Pepper  v.  Labrot,  8  Fed.  Rep.  29  ;  Warren  i;.  Warren, 
134  Mass.  247  (see  also  Bury  v.  Bedford,  4  I)e  G.  J.  &  S.  352,  371),  even  though  not 
so  expressly  stated  in  the  act  And  even  though  expressly  so  stated  in  the  present 
act  (sec.  70  a  (2)  },  the  qualification  must  be  implied  that  a  trade-name  or  mark  which 
necessarily  indicates  the  personal  production  of  the  bankrupt  cannot  pass  to  his 
trustee.  See  Am.  &  Eng.  Encyc.  of  Law,  Vol.  26,  p.  371.  Rights  under  an  applies* 
tion  for  a  patent  do  not  pass.  /•'•  McDonnell,  101  Fed.  Rep.  239. 


/ 

430  WILLIAMS   V.   HEARD.  [CHAP.  V. 

receirers,  "for  the  preservation  of  estates,  to  take  charge  of  the  prop- 
erty of  bankrupts  after  the  filing  of  the  petition  and  until  it  is  dismissed 
or  the  trustee  qualified."  It  is  argued  that  this  limits  the  power  of  re- 
ceivers, and  forbids  them  to  do  more  than  hold  possession  of  the  bank- 
rupt's property  during  a  certain  interval.  I  do  not  think  the  argument 
is  sound.  The  clause  restricts  the  power  of  the  court  to  appoint,  con- 
fining it  to  cases  of  absolute  necessity,  and  then  goes  on  to  state  the 
purpose  for  which  the  appointment  may  be  originally  made.  But, 
after  a  receiver  has  once  gone  into  possession,  it  may  become  necessary 
to  sell  the  property  for  the  very  purpose  of  preserving  it,  or  its  value, 
—  which  is,  of  course,  the  essential  matter,  —  either  in  whole  or  in 
part.  In  such  event,  I  think  the  court  has  ample  power  to  order  or 
confirm  a  sale,  either  under  the  power  to  preserve,  implied  by  clause  3 
itself,  or  under  clause  7  of  the  same  section,  which  empowers  the  court 
to  "cause  the  assets  of  bankrupts  to  be  collected,  reduced  to  money, 
and  distributed." 

The  exceptions  are  dismissed,  and  the  referee's  opinion  and  order 
are  approved. 


WILLIAMS  v.  HEARD. 
UNITED  STATES  SUPREME  COURT,  MAY  1-25,  1891. 

[Reported  in  140  United  States,  529.] 

MR.  JUSTICE  LAMAR,  after  stating  the  case,  delivered  the  opinion  of 
the  court. 

The  single  question  on  the  merits  of  the  case  is,  whether,  at  the  date 
of  their  adjudication  in  bankruptcy,  the  claim  of  the  defendants  in  error 
for  war  premiums  passed  to  their  assignees  in  bankruptcy  as  a  part  of 
their  estate. 

As  preliminary  to  the  discussion  of  the  merits  of  the  case,  it  is  urged 
by  the  defendants  in  error  that  this  is  not  a  federal  question,  and  that, 
therefore,  the  writ  of  error  should  be  dismissed.  We  do  not  think, 
however,  that  this  contention  can  be  sustained.  Both  parties  claim 
the  proceeds  of  the  award,  —  the  defendants  in  error  asserting  that  it 
did  not  pass  to  their  assignees  in  bankruptcy  under  section  5044  of  the 
Revised  Statutes,  and  the  plaintiff  in  error  insisting  that  the  claim  was 
a  part  of  their  estate  at  the  date  of  their  adjudication  in  bankruptcy, 
and  did  pass  to  the  assignees  under  that  section  of  the  Revised  Stat- 
utes. The  assignee's  claim  to  the  award  is  based  on  that  section  of  the 
statutes ;  and  as  the  State  court  decided  against  him,  this  court  has 
jurisdiction,  under  section  709  Revised  Statutes,  to  review  that  judg- 
ment; for  the  decision  of  the  State  court  was  against  a  "right"  or 
"  title  "  claimed  under  a  statute  of  the  United  States,  within  the  mean- 
ing of  that  section. 


SECT.  IV.]  WILLIAMS   V.   HEARD.  431 

The  case  upon  the  merits  is  more  difficult.  There  is  high  authority 
in  the  State  courts  in  support  of  the  judgment  of  the  court,  below.  The 
same  general  question  has  arisen  in  New  York,  in  Maryland,  and  in 
Maine  ;  and  in  each  instance  the  decision  has  been,  like  the  one  we  are 
reviewing,  against  the  assignee.  See  Taft  v.  Marsily,  120  N.  Y.  474; 
Brooks  v.  Ahrens,  68  Md.  212  ;  and  Kingsbury  v.  Mattocks,  81  Me. 
310.  But  as  the  question  is  one  arising  under  the  bankruptcy  statute 
of  the  United  States,  we  cannot  rest  our  judgment  upon  those  adjudi- 
cations alone,  however  persuasive  they  may  be. 

By  the  treaty  of  "Washington,  concluded  May  8,  1871,  between  the  &ou-~ 
United  States  and  Great  Britain,  and  proclaimed  July  4,  1871,  17  Stat.  >i- 
863,  it  was  provided  that,  in  order  to  settle  the  differences  which  had  &~x 
arisen  between  the  United  States  and  Great  Britain  respecting  claims 
growing  out  of  depredations  committed  by  the  Alabama  and  other 
designated  vessels  which  had  sailed  from  British  ports,  upon  the  com- 
merce and  navy  of  the  United  States,  which  were  generically  known  as 
the  Alabama  Claims,  those  claims  should  be  submitted  to  a  tribunal  of 
arbitration  called  to  meet  at  Geneva,  in  Switzerland.  The  claims  pre- 
sented to  that  tribunal  on  the  part  of  the  representative  of  the  United 
States  included  those  arising  out  of  damages  committed  by  those  cruis- 
ers, and  also  indirect  claims  of  several  descriptions,  and  among  them 
claims  for  enhanced  premiums  of  insurance,  or  war  risks,  as  they  were 
sometimes  called.  As  respects  the  claims  for  enhanced  premiums  for 
war  risks,  and  certain  other  indirect  claims,  objection  was  made  by 
Great  Britain  to  their  consideration  by  the  tribunal,  as  not  having  been 
included  in  the  purview  of  the  treaty ;  and  as  no  agreement  could  be 
reached  upon  this  point  between  the  representatives  of  the  respective 
governments,  the  arbitrators,  without  expressing  any  opinion  upon  the 
point  of  difference  as  to  the  interpretation  of  the  treaty,  stated  that, 
"  after  the  most  careful  perusal  of  all  that  has  been  urged  on  the  part 
of  the  government  of  the  United  States  in  respect  of  these  claims,  they 
have  arrived,  individually  and  collectively,  at  the  conclusion  that  these 
claims  do  not  constitute,  upon  the  principles  of  international  law  ap- 
plicable to  such  cases,  good  foundation  for  an  award  of  compensation 
or  computation  of  damages  between  nations,  and  should,  upon  such 
principles,  be  wholly  excluded  from  the  consideration  of  the  tribunal  in 
making  its  award,  even  if  there  were  no  disagreement  between  the  two 
governments  as  to  the  competency  of  the  tribunal  to  decide  thereon." 
Messages  and  Documents,  Department  of  State,  pt.  2,  vol.  iv.  1872-73, 
p.  20. 

This  declaration  of  the  tribunal  was  accepted  by  the  President  of  the 
United  States  as  determinative  of  their  judgment  upon  the  question  of 
public  law  involved ;  and,  according!}',  those  indirect  claims  were  not 
insisted  upon  before  the  tribunal,  and  were  not,  in  fact,  taken  into  con- 
sideration in  making  their  award.  Id.,  p.  21. 

The  tribunal  finally  awarded  to  the  United  States  $15,500,000  as 
indemnity  for  losses  sustained  by  citizens  of  this  country  by  reason  of 


432  WILLIAMS   V.    HEARD.  [CHAP.  V. 

(  jur-  the  acts  of  the  aforesaid  cruisers,  and  that  sum  was  paid  over  by  Great 
Britain. 

It  was  held  in  United  States  v.  Weld,  127  U.  S.  51,  that  this  award 
was  made  to  the  United  States  as  a  nation.  The  fund  was,  at  ail 
events,  a  national  fund,  to  be  distributed  by  Congress  as  it  saw  fit. 
True,  as  citizens  of  the  United  States  had  suffered  in  person  and  prop- 
ert}'  b}'  reason  of  the  acts  of  the  Confederate  cruisers,  and  as  justice 
demanded  that  such  losses  should  be  made  good  by  the  government  ot 
Great  Britain,  the  most  natural  disposition  of  the  fund  that  could  be 
made  by  Congress  was  in  the  paj-rnent  of  such  losses.  But  no  indi- 
vidual claimant  had,  as  a  matter  of  strict  legal  or  equitable  right,  any 
lien  upon  the  fund  awarded,  nor  was  Congress  under  an}-  legal  01 
equitable  obligation  to  pay  any  claim  out  of  the  proceeds  of  that  fund. 

We  premise  this  much  to  show  that,  as  respects  the  various  claims, 
both  of  the  first  and  second  classes,  for  which  payment  was  afterwards 
provided  by  Congress,  they  stood  on  a  basis  of  equality,  in  the  matter 
of  legal  right  on  the  part  of  the  claimants  to  demand  their  payment,  or 
legal  obligation  on  the  part  of  the  government  of  the  United  States  to 
pay  them.  There  was  undoubtedly  a  moral  obligation  on  the  United 
States  to  bestow  the  fund  received  upon  the  individuals  who  hud  suf- 
fered losses  at  the  hands  of  the  Confederate  cruisers  ;  and  in  this  sense 
all  the  claims,  of  whatsoever  nature,  were  possessed  of  greater  or  less 
pecuniary  value.  There  was  at  least  a  possibilitj7  of  their  payment  by 
Congress,  —  an  expectancy  of  interest  in  the  fund  ;  that  is,  a  possibility 
coupled  with  an  interest. 

The  first  provision  made  for  the  distribution  of  this  fund  was  by  the 
'  -^  Act  of  June  23,  1874,  18  Stat.  245,  c.  459.  By  that  act  there  was 
established  a  court  known  as  the  Court  of  Commissioners  of  Alabama 
Claims,  to  be  composed  of  five  judges,  whose  duties,  among  other 
things,  were  to  receive  and  examine  all  claims  admissible  under  the 
act  that  might  be  presented  to  them,  directly  resulting  from  damage 
caused  by  the  afore-mentioned  Confederate  cruisers.  By  section  8  the 
court  was  to  exist  for  one  year  from  the  date  of  its  first  convening  and 
organizing,  and  the  President  might,  by  proclamation,  extend  its  exist- 
ence for  six  months  more.  By  subsequent  acts  of  Congress  the  exist- 
ence of  the  court  was  continued  until  January  1,  1877,  to  enable  it  to 
complete  the  business  for  which  it  was  created. 

The  claims  allowed  b}-  this  court  did  not  amount  to  the  sum  of  the 
award ;  and  as  many  claims  had  not  been  presented  to  the  court,  Con- 
gress, by  the  Act  of  June  5, 1882,  22  Stat.  98,  c.  195,  re-established  the 
court  "  for  the  distribution  of  the  unappropriated  moneys  of  the  Geneva 
award."  Tt  was  made  the  dut}'  of  the  court,  as  reorganized,  to  receive 
and  examine  the  claims  which  might  be  presented,  putting  them  into 
two  classes,  and  to  render  judgment  for  the  amounts  allowed.  Claims 
of  the  first  class  were  those  "  directly  resulting  from  damage  done  on  the 
high  seas  by  Confederate  cruisers  during  the  late  rebellion,  including 
vessels  and  cargoes  attacked  on  the  high  seas,  although  the  loss  or 


SECT.  IV.]  WILLIAMS   V.   HEARD.  433 

damage  occurred  within  four  miles  of  the  shore  ; "  and  claims  of  the 
second  class  were  those  "  for  the  payment  of  premiums  for  war  risks, 
whether  paid  to  corporations,  agents,  or  individuals,  after  the  sailing 
of  any  Confederate  cruiser." 

As  already  stated,  the  defendants  in  error  were  adjudicated  bank-  ^ 
rupts  August  5,  1875,  and  were  discharged  July  20,  1877.     No  steps  Jl^^ 
were  taken  in  the  matter  of  their  claim  until  after  the  passage  of  the 
act  of  1882.     The  award  was  made  by  the  Court  of  Commissioners  in  „, 
December,  1886,  that  court  finding  that  the  assignees  of  the  defendants 
in  error  were  entitled  to  such  award. 

It  is  urged  on  behalf  of  the  plaintiff  in  error  that  this  finding,  that 
the  assignees  were  entitled  to  the  amount  of  the  award  on  this  claim, 
was  final,  and  not  subject  to  review  in  any  other  court  or  tribunal.  In "3&£,  "Vtwtt/w. 
other  words,  it  is  insisted  that  the  decision  of  that  court,  both  as  re- 
spects the  amount  to  be  paid  on  the  claims,  and  also  as  to  who  was 
entitled  to  receive  that  amount,  was  final  and  irrevocable. 

We  are  not  impressed  with  this  view.  In  our  opinion  it  is  unsound. 
The  object  for  which  the  Court  of  Commissioners  of  Alabama  Claims 
was  established  was  to  pass  upon  the  claims  which  were  presented  to 
it  for  adjudication,  and  determine  the  amount  to  be  paid  by  the  United 
States  on  each  claim.  Questions  respecting  the  ownership  of  the  re- 
spective claims  did  not  concern  the  court.  Its  function  was  performed 
when  it  rendered  its  judgment  on  the  merit  of  the  claims.  Its  judg- 
ments were  final  upon  all  parties,  as  respects  the  validity  of  the  claim, 
and  the  amount  to  be  paid  in  satisfaction  of  it ;  but  there  is  nothing  in 
the  acts  of  Congress  relating  to  this  matter,  or  in  the  reason  of  things, 
to  indicate  that  the  judgment  of  the  court,  as  to  who  were  the  owners 
of  the  respective  claims  submitted,  should  be  considered  final  and 
irrevocable. 

Passing  now  to  the  most  important  question  in  the  case,  we  are  to^fv-' 
consider  whether  the  claim  passed  to  the  assignees  of  the  defendants  in  ^.^P 
error  by  virtue  of  the  deed  of  assignment  in  their  bankruptcy  proceed- 
ings ;  or  whether,  on  the  other  hand,  it  never  constituted  a  part  of  the  </Y 
estate  until  the  passage  of  the  act  of  1882.    From  the  agreed  statement 
of  facts  it  is  ascertained  that  the  assignments  in  bankruptcy  were  in 
the  usual  form. 

By  section  5044,  Rev.  Stat.,  it  is  provided  that  "all  the  estate,  real 
and  personal,  of  the  bankrupt,  with  all  his  deeds,  books,  and  papers 
relating  thereto,"  shall  be  conveyed  to  the  assignee  immediately  after 
he  is  appointed  and  qualified.  Section  5046  puts  the  assignee  in  the 
same  position  as  regards  all  manner  and  description  of  the  bankrupt's  ' 
property  (except  that  specifiealty  exempt),  as  the  bankrupt  himself 
would  have  occupied  had  no  assignment  been  made.  And  subsequent 
sections  establish  in  the  assignee  the  right  to  sue  for  and  recover  all 
the  bankrupt's  "estate,  debts,  and  effects"  in  his  own  name,  and  other- 
wise represent  the  bankrupt  in  every  particular  as  respects  the  latter^ 
property,  of  whatever  species  or  description. 


434  WILLIAMS   V.   HEARD.  [CHAP.  V. 

It  must  be  conceded  that  the  language  of  the  Revised  Statutes  re- 
lating to  bankruptcy  to  which  we  have  referred  is  broad  and  compre- 
hensive enough  to  embrace  the  whole  property  of  the  bankrupt.  Was 
the  claim  in  this  case  property  in  an}'  sense  of  the  term  ?  We  think  it 


was.  Who  can  doubt  but  that  the  right  to  prosecute  this  claim  before 
the  Court  of  Commissioners  of  Alabama  Claims  would  have  survived 
to  their  legal  representatives  had  the  original  claimants  been  dead  at 
the  passage  of  the  act  of  1882  ?  If  so,  the  money  recovered  would 
have  been  distributable  as  assets  of  the  estate.  While,  as  already 
stated,  there  were  no  means  of  compelling  Congress  to  distribute  the 
fund  received  in  virtue  of  the  Geneva  award,  and  while  the  claimant 
was  remediless  with  respect  to  any  proceedings  by  which  he  might  be 
able  to  retrench  his  losses,  nevertheless  there  was  at  all  times  a  moral 
obligation  on  the  part  of  the  government  to  do  justice  to  those  who  had 
suffered  in  property.  As  we  have  shown  from  the  history  of  the  pro- 
ceedings leading  up  to  the  organization  of  the  tribunal  at  Geneva,  these 
war  premiums  of  insurance  were  recognized  by  the  government  of  the 
United  States  as  valid  claims  for  which  satisfaction  should  be  guaran- 
teed. There  was  thus  at  all  times  a  possibility  that  the  government 
would  see  that  they  were  paid.  There  was  a  possibility  of  their  being 
at  some  time  valuable.  They  were  rights  growing  out  of  property,  — 
rights,  it  is  true,  that  were  not  enforceable  until  after  the  passage  of 
the  act  of  Congress  for  the  distribution  of  the  fund.  But  the  act  of 
Congress  did  not  create  the  rights.  The}-  had  existed  at  all  times  since 
the  losses  occurred.  They  were  created  by  reason  of  losses  having 
been  suffered.  All  that  the  act  of  Congress  did  was  to  provide  a 
remedy  for  the  enforcement  of  the  right. 

The  claims  in  this  case  differ  very  materially  from  a  claim  for  a  dis- 
ability pension,1  to  which  they  are  sought  to  be  likened.  The}'  are 
descendible ;  are  a  part  of  the  estate  of  the  original  claimants  which, 
in  case  of  their  death,  would  pass  to  their  personal  representatives  and 
be  distributable  as  assets  ;  or  might  have  been  devised  by  will ;  while  a 
claim  for  a  pension  is  personal,  and  not  susceptible  of  passing  by  will, 
or  by  operation  of  law,  as  personalty. 

Neither  do  we  think  that  the  money  appropriated  by  Congress  by  the 
act  of  1882  to  pay  these  claims  should  be  considered  merely  as  a  gra- 

1  A  pension  solely  for  past  services  will  pass  to  an  assignee  or  trustee  in  bank- 
ruptcy, but  not  a  pension  in  consideration  of  continuing  or  future  services.  Spooner  v. 
Payne,  1  DeG.  M.  &  G.383;  Wells  v.  Foster,  8  M.  &  W.  149;  Ex  parte  Huggins,  21 
Ch.  D.  85.  See  also  Oliver  v.  Emsonne,  Dyer,  1  b;  York  v.  Twine,  Cro.  Jac.  78; 
Heald  v.  Hay,  3  Giff.  467;  Carew  v.  Cooper,  4  Giff.  619;  Ellis  v.  Earl  Grey,  6  Sim. 
214 ;  Tnnstall  i>.  Boothby,  10  Sim.  542 ;  Knight  v.  Bulkeley,  5  Jur.  N.  8.  817 ;  Ex  parte 
Webber,  18  Q.  B.  D.  Ill ;  McCarthy  v.  Goold,  1  Ball  &  Beatty  (Ir.  Ch.),  387.  The 
matter  of  government  pensions  is  now  largely  regulated  by  statute.  The  English  Act 
of  1883,  §  53  (2),  gives  the  court  power  to  direct  that  the  court  may  "make  such  order 
as  it  thinks  just  for  the  payment  of  ...  half-pay  or  pension,  or  of  any  part  thereof, 
to  the  trustee."  In  the  United  States  the  pensions  of  soldiers  and  sailors  cannot  bo 
assigned.  Rev.  Stat.,  §  4745. 


SECT.  IV.]  WILLIAMS   V.   HEARD.  435 

tuity.1  On  this  point  we  can  do  no  better  than  to  quote  the  language 
of  the  learned  judge  of  the  court  below  who  delivered  the  dissenting 
opinion.  He  says  :  "  If  Congress  intended  by  these  statutes  to  appro- 
priate the  money  to  certain  persons  as  a  gratuity,  the  only  matters  for 
the  Court  of  Commissioners  to  deal  with  would  have  been  the  persons 
intended  by  the  statutes,  and  the  amounts  given  to  each ;  and  it  is 
difficult  to  see  how  a  judicial  court  could  re-examine  the  distribution 
made  by  the  Court  of  Commissioners  unless  the  persons  to  whom  that 
court  awarded  the  money  claimed  and  received  it  in  some  representa- 
tive capacity.  The  judicial  courts  determine  the  ownership  of  the 
money  awarded  only  on  the  ground  that  it  follows  the  ownership  of 
the  property  as  compensation  for  which  the  awards  were  made.  Con- 
gress did  not,  however,  in  these  statutes  specify  the  persons  entitled 
to  receive  the  money  otherwise  than  by  describing  the  claims  to  be 
admitted,  except  that  it  provided  for  the  exclusion  of  claims  for  the 
loss  of  property  insured  to  the  extent  of  the  indemnity  received  from 
the  insurance,  and  that  no  claim  shall  be  allowed  '  in  favor  of  any 
person  not  entitled  at  the  time  of  the  loss  to  the  protection  of  the 
United  States  in  the  premises,'  nor  '  in  favor  of  am"  person  who  did  not 
at  all  times  during  the  late  rebellion  bear  true  allegiance  to  the  United 
States.' "  146  Mass.  554,  555. 

"We  have  authority  in  this  court  for  the  position  we  maintain.  In 
Comegys  v.  Vasse,  1  Pet.  193,  the  controversy  was  between  a  bankrupt 
and  his  assignees  over  a  claim  against  the  government  of  Spain  for 
insurance  on  various  vessels  and  cargoes  which  had  been  condemned 
by  the  Spanish  prize  courts.  The  case  was  this  :  Vasse  had  been  an 
underwriter  on  ships  and  cargoes  owned  by  citizens  of  the  United 
States  which  were  captured  and  carried  into  the  ports  of  Spain,  and 
abandonments  having  been  made  thereof  to  him,  he  paid  the  losses 
thus  arising  prior  to  the  year  1802.  In  that  same  year  he  became  em- 
barrassed and  made  an  assignment  under  the  bankrupt  law  of  April  4, 
1800.  His  certificate  of  discharge  was  dated  May  28,  1802.  In  his 
return  of  his  property  and  effects  to  the  commissioners,  which  he  was 
required  to  make  by  the  act,  he  did  not  include  this  claim  against 
Spain,  because  it  was  not  believed  to  have  any  value,  depending,  as  it 
did,  merely  on  the  discretion  and  pleasure  of  the  Spanish  government. 
By  the  treaty  of  1819  with  Spain,  that  government  stipulated  to  pay 
five  millions  of  dollars  in  full  discharge  of  the  unlawful  seizures  which 

1  In  the  following  cases  the  debtor  having  no  previous  legal  right  to  the  property  in 
question,  it  was  held  his  assignee  or  trustee  in  bankruptcy  took  nothing.  Wills  v. 
Wells,  8  Taunt.  264  (money  voluntarily  paid  by  an  insurance  company  on  a  void 
policy);  Ex  parte  Piercy,  L.  R.  9  Ch.  33  (money  received  in  accordance  with  a  con- 
tract between  third  persons) ;  Ex  parte  Wicks,  17  Ch.  I).  70  (a  voluntary  allowance)  ; 
Ex  parte  Webber,  18  Q.  B.  D.  Ill  (a  "compassionate  allowance"  paid  to  a  disabled 
government  employee) ;  Tallman  v.  Tallman,  5  Cush.  325  (money  awarded  to  an  heir 
not  legally  entitled  to  anything  by  arbitrators,  with  power  to  act  according  to  "sub- 
.stantial  justice  and  right") ;  Gillan  >-.  Gillan,  55  Pa.  430  (money  awarded  by  a  State 
to  victims  of  a  disaster).  See  also  Emerson  v.  Hall,  13  Pet.  409. 


436  WILLIAMS   V.   HEARD.  [CHAP.  V. 

she  had  made,  and  the  money  was  afterwards  paid  over.  Under  the 
distribution  of  that  fund  the  assignees  in  1824  received  a  sum  amount- 
ing to  over  $8,000,  as  a  part  of  the  bankrupt's  estate.  Vasse  brought 
suit  to  recorer  it  from  the  assignees,  and  recovered  judgment  in  the 
Circuit  Court ;  but  on  error  this  court  reversed  that  judgment,  and  held 
that  the  claim  for  which  satisfaction  had  been  made  was  a  part  of  the 
estate  of  the  bankrupt  in  1802,  and  therefore  passed  to  the  assignees 
under  the  deed  of  assignment.  The  bankrupt  act  of  1800,  under  which 
the  case  arose,  was  quite  similar  to  the  statute  involved  in  this  case, 
providing  that  "  all  the  estate,  real  and  personal,  of  every  nature  and 
description,  to  which  the  bankrupt  might  be  entitled,  either  in  law  or  in 
equity,"  should  go  to  his  assignee ;  and  the  court  held  that  those  words 
were  broad  and  comprehensive  enough  to  cover  every  description  of 
vested  right  and  interest  attached  to  and  growing  out  of  property.  The 
opinion  of  the  court  was  delivered  by  Mr.  Justice  Stoiy.  In  the  course 
of  his  remarks  he  said:  "It  is  not  universally,  though  it  ma}-  ordi- 
narily be  one  test  of  right,  that  it  may  be  enforced  in  a  court  of  justice. 
Claims  and  debts  due  from  a  sovereign  are  not  ordinarily  capable  of 
being  so  enforced.  Neither  the  king  of  Great  Britain  nor  the  govern- 
ment of  the  United  States  is  suable  in  the  ordinar}-  courts  of  justice  for 
debts  due  by  either ;  yet  who  will  doubt  that  such  debts  are  rights  ?  It 
does  not  follow  because  an  unjust  sentence  is  irreversible  that  the  party 
has  lost  all  right  to  justice,  or  all  claim,  upon  principles  of  public  law, 
to  remuneration.  With  reference  to  mere  municipal  law,  he  may  be 
without  remedy ;  but  with  reference  to  principles  of  international  law, 
he  has  a  right  both  to  the  justice  of  his  own  and  the  foreign  sovereign." 
1  Pet.  216. 

Again,  referring  to  the  language  of  the  bankrupt  act  of  1800,  he 
said :  "  'All  the  estate,  real  and  personal,  of  even-  nature  and  descrip- 
tion, in  law  or  equity,'  are  broad  enough  to  cover  ever}T  description  of 
vested  right  and  interest  attached  to  and  growing  out  of  property. 
Under  such  words  the  whole  property  of  a  testator  would  pass  to  his 
devisee.  Whatever  the  administrator  would  take,  in  case  of  intestacy, 
would  seem  capable  of  passing  by  such  words.  It  will  not  admit  of 
question  that  the  rights  devolved  upon  Vasse  by  the  abandonment 
could,  in  case  of  his  death,  have  passed  to  his  personal  representative, 
and  when  the  money  was  received  be  distributable  as  assets.  Why, 
then,  should  it  not  be  assets  in  the  hands  of  the  assignees?  Consider- 
ing it  in  the  light  in  which  Lord  Hardwicke  viewed  it,  as  an  equitable 
trust  in  the  money,  it  is  still  an  interest,  or,  at  all  events,  a  possibility 
coupled  with  an  interest."  1  Pet.  218,  219. 

The  principles  of  that  case  were  applied  in  Milnor  v.  Metz,  16  Pet. 
221,  to  the  case  of  a  claim  for  extra  pay  for  services  rendered  by  a 
bankrupt  as  gauger  at  the  port  of  Philadelphia,  which,  although  pre- 
sented to  Congress  prior  to  his  adjudication  in  bankruptc}-,  was  not 
recognized  by  that  body  or  satisfied  until  afterwards,  the  court  holding, 
that  the  claim  passed  to  the  assignee  as  part  of  the  bankrupt's  estate, 
and  that  the  doctrine  of  donation  did  not  apply. 


SECT.  IV.]  WILLIAMS   V.    HEARD.  437 

In  Phelps  v.  McDonald,  99  U.  S.  298,  McDonald,  who  was  a  British 
subject  residing  in  the  United  States,  was  declared  a  bankrupt  in  1868, 
and  the  conveyance  of  his  estate  was  made  in  the  usual  form  by  the 
register  to  an  assignee.  At  that  time  he  had  a  claim  against  the  United 
States,  of  which  the  commission  organized  under  the  treaty  of  Washing- 
ton took  cognizance,  and  made  an  award  for  its  paj'ment.  It  was  held 
that  such  claim  passed  to  the  assignee.  In  the  opinion  of  the  court, 
delivered  by  Mr.  Justice  Swayne,  after  referring  to  Comeg3's  v.  Vasse, 
and  other  cases  of  that  nature,  it  was  said :  "  There  is  no  element  of  a 
donation  in  the  payment  ultimately  made  in  such  cases.  Nations,  no 
more  than  individuals,  make  gifts  of  money  to  foreign  strangers.  Nor 
is  it  material  that  the  claim  cannot  be  enforced  by  a  suit  under  munici- 
pal law  which  authorizes  such  a  proceeding.  In  most  instances  the 
pa}'ment  of  the  simplest  debt  of  the  sovereign  depends  wholly  upon  his 
will  and  pleasure.  The  theor}1"  of  the  rule  is  that  the  government  is 
always  ready  and  willing  to  pay  promptly  whatever  is  due  to  the  cred- 
itor. .  .  .  It  is  enough  that  the  right  exists  when  the  transfer  is  made, 
no  matter  how  remote  or  uncertain  the  time  of  payment.  The  latter 
does  not  affect  the  former.  ...  If  the  thing  be  assigned,  the  right  to 
collect  the  proceeds  adheres  to  it,  and  travels  with  it  whithersoever  the 
property  may  go.  The}'  are  inseparable.  Vested  rights  ad  rem  and 
in  re  —  possibilities  coupled  with  an  interest  and  claims  growing  out  of 
property  —  pass  to  the  assignee."  99  U.  S.  303,  304.  To  the  same 
effect  are  Erwin  v.  United  States,  97  U.  S.  392  ;  Bachman  v.  Lawson, 
109  U.  S.  659. 

There  is  nothing  in  United  States  v.  Weld,  127  U.  S.  51,  that  mili- 
tates against  the  view  herein  presented.  In  that  case  it  was  held  that, 
as  respects  the  jurisdiction  of  the  Court  of  Claims  to  entertain  the  suit 
against  the  United  States  under  section  1066,  Rev.  Stat,  the  claim 
must  be  regarded  as  growing  out  of  the  act  of  1882,  because  that  act 
furnished  the  remedy  by  winch  the  rights  of  the  claimant  might  be  en- 
forced. But  that  is  an  entirely  different  proposition  from  the  one  con- 
tended for  here  by  the  defendants  in  error,  that  the  claim  was  created 
by  that  act. 

In  our  opinion  this  case  falls  within  the  principles  of  Comeg3-s        . 
Vasse  and  Phelps  v.  McDonald,  and  the  judgment  of  the  court  be-yj^ 
low  is 

Reversed,  and  the  cause  remanded  for  further  proceedings  not' 
inconsistent  with  this  opinion.1 

1  Butler  v.  Gorely,  146  U.  S.  303,  ace.  See  also  Price  v.  Forrest,  173  U.  S.  410, 
where  money  repaid  under  act  of  Congress  in  reimbursement  of  money  advanced  by  a 
government  officer  was  held  to  pass  to  a  receiver  (con/.  Emerson  v.  Hall,  13  1'et.  409) ; 
and  Caldcr  v.  Henderson,  54  Fed.Jlep.  802  (C.  C.  A.;,  where  a  planter's  right  to  a 
government  bounty  for  raising  sugar  was  held  to  pass  under  the  insolvency  law  of 
Louisiana. 

But  where,  as  in  its  legislation  in  regard  to  French  spoliation,  Congress  indicates 
an  intention  to  pay  an  indemnity  to  the  next  of  kin  of  the  original  sufferer,  an 
assignee  in  bankruptcy,  either  of  the  original  sufferer  or  of  any  intermediate  descend- 


y 

438  WRIGHT  V.   FIRST   NAT'L   BANK   OF    GREENSBURG.        [CHAP.  V. 


WRIGHT  EX  AL.,  ASSIGNEES,  v.  FIRST   NATIONAL   BANK   OF 

GREENSBURG. 

CIRCUIT  COURT  FOR  THE  DISTRICT  OP  INDIANA,  JULY,  jj3J&_ 
[Reported  in  8  Bissett.  243.1 

GRESHAM,  J.  The  declaration  alleges  that  the  defendant  has  re- 
served, taken,  and  received  usurious  interest  from  the  bankrupts.  The 
action  is  brought  to  recover  double  the  amount  of  interest  thus  paid, 
and  is  based  upon  the  30th  section  of  the  National  Banking_Act,  which 
reads  as  follows  :  — 

"Every  association  organized  under  this  act  may  take,  receive, 
reserve,  and  charge  on  any  loan  .  .  .  interest,  at  the  rate  allowed 
by  the  laws  of  the  State  or  territory  where  the  bank  is  located,  and  no 
more  ;  except  that  where  by  the  laws  of  any  State  a  different  rate  is 
limited  for  banks  of  issue  organized  under  State  laws,  the  rate  so  lim- 
ited shall  be  allowed  for  associations  organized  in  an}'  such  State,  under 
this  act.  And  when  no  rate  is  fixed  by  the  laws  of  the  State  or  terri- 
tory, the  bank  may  take,  receive,  reserve,  or  charge  a  rate  not  exceed- 
ing seven  per  centum  ....  And  in  case  a  greater  rate  of  interest 
has  been  paid,  the  person  or  persons  paj'ing  the  same,  or  their  legal 
representatives,  may  recover  back,  in  any  action  of  debt,  twice  the 
amount  of  interest  thus  paid,  from  the  association  taking  or  receiving 
the  same." 

The  defendant  demurs  to  the  declaration,  on  the  ground  that  the 
plaintiffs,  as  assignees  in  bankruptc}",  have  no  legal  capacity  to  prose- 
cute the  action.  This  is  the  only  question  presented  by  the  demurrer. 

The  right  of  action  given  by  this  section  is  penal.  Tiffany  v.  National 
Bank,  18  Wall.  409. 

In  the  absence  of  a  statute  authorizing  it,  a  right  to  a  penalt}'  cannot 
be  assigned,  nor,  a  right  of  action  for  a  tort.  Gardiner  v.  Adams,  12 
Wend.  297.  The  defendant  exacted  and  received  usurious  interest. 
Had  the  bankrupts  remained  solvent,  the^y  might  have  prosecuted  an 
action  for  double  the  amount  of  interest  paid.  Unless  the  right  of  action 
has  been  barred,  it  yet  exists,  either  in  the  bankrupts  or  their  assignees. 
It  is  insisted  that  because  the  bankrupts  could  not  have  sold  or  trans- 
ferred the  right  of  action,  if  they  had  remained  solvent,  that,  therefore, 
their  assignees  have  no  legal  capacity  to  prosecute  the  suit.  Tiffany  v, 
The  National  Bank,  supra,  was  an  action  by  a  trustee,  to  recover  the 
penalty  given  by  the  statute.  The  plaintiff  recovered,  but  his  capacity 
to  maintain  the  action  seems  not  to  have  been  directly  raised.  In  the 
case  of  Crocker,  Assignee,  v.  First  National  Bank,  4  Dill.  358,  the 
precise  question  raised  by  this  demurrer  was  considered,  and  it  was 

ant,  gets  nothing.    Blagge  v.  Balch,  162  U.  S.  439.     See  also  Briggs  v.  Walker,  171 
U.  S.  466. 


SECT.  IV.]         WRIGHT   V.   FIRST   NAT'L   BANK   OF    GREENSBURG.          439 

held  by  Dillon,  Judge,  that  the  assignee  was  the  "legal  representa- 
tive "  of  the  borrower  within  the  meaning  of  the  banking  act,  and  as 
such  could  maintain  the  suit  whether  the  right  of  action  vested  in  the 
assignee  under  the  bankrupt  law  or  not. 

In  Tiffany  v.  Boatman's  Institution,  18  Wall.  375,  the  assignee  in 
bankruptcy  was  allowed  to  recover  usurious  interest,  which  had  been 
paid  by  the  bankrupt  in  violation  of  the  statutes  of  Missouri. 

In  Meech  v.  Stoner,  19  N.  Y.  26,  it  was  held  that  an  assignee 
could  maintain  an  action  to  recover  money  lost  at  faro,  under  a  statute 
which  gave  the  right  of  action  to  the  loser.1  See  also  Carter  v.  Ab- 
bott, 1  Barne.  and  Cress.  444,  and  Gray  v.  Bennett,  3  Met.  522.  In 
this  last  case,  the  assignee  of  the  insolvent  debtor  was  allowed  to  re- 
cover three-fold  the  amount  of  usurious  interest  paid  to  the  defendant, 
that  being  the  amount  allowed  by  the  Massachusetts  statutes.  This  is 
a  well-considered  case. 

In  Bromley,  Assignee,  v.  Smith,  2  Biss.  511,  it  was  held  by  Miller, 
District  Judge,  that  the  assignee  could  not  maintain  an  action  to  recover 
the  penalty  given  by  the  statute.  And  it  seems  to  be  conceded  that  in 
the  case  of  Barnett  v.  Muncie  National  Bank,  in  the  Circuit  Court  of 
the  United  States  for  the  Southern  District  of  Ohio,  a  similar  ruling 
was  made  by  Justice  Swayne,  and  the  late  Circuit  Judge,  Emmons,  in 
an  oral,  but  unreported  opinion.  To  the  same  effect  is  Nichols  v.  Bel- 
lows, 22  Vt.  581. 2 

The  bankrupt  act  vests  in  the  assignee  for  the  creditors  the  entire 
estate  of  the  debtor  —  everything  of  beneficial  interest  passes  by  the 
deed  of  assignment,  except  certain  necessary  exemptions  which  are 
intended  to  protect  the  bankrupt  and  his  family  from  temporary  dis- 
tress. 

It  is  true  that  rights  of  action  for  torts  to  the  debtor's  person,  such 
as  assault  and  battery,  false  imprisonment,  malicious  prosecution,  libel, 
and  slander,  do  not  pass  to  the  assignee.  While  it  must  be  conceded  ^ 
tliat  under  the  decision  of  the  Supreme  Court,  this  is  an  action,  in  part  iv 
at  least,  to  recover  a  penalty,  yet  there  are  reasons  why  claims  of  this 
kind  should  vest  in  the  assignee  which  do  not  apply  to  rights  of  action 
for  damages  growing  out  of  mere  torts  to  the  debtor's  person.  In  the 
right  of  action  given  by  the  banking  act  the  bank  exacts  and  receives 
from  the  borrower  more  than  the  law  allows  as  a  fair  compensation  for 
the  use  of  its  money.  In  this  illegal  way,  the  bank  gets  into  its  pos- 
session part  of  the  borrower's  estate,  mone}r  which  should  go  to  the 
creditors  of  the  bankrupt  borrower.  This  demand  and  receipt  of  illegal 
interest  b}-  the  bank  may  have  materially  contributed  to  the  bankrupt's 
downfall.  The  recovery  allowed  by  the  30th  section  of  the  act  is  "  in 
any  action  of  debt." 

If  the  assignees  are  not  the  "  legal  representatives"  of  the  bankrupt 

1  Brandon  v.  Pate,  2  H.  Bl.  308  ;  Brandon  v.  Sands,  2  Ves.  514,  ace. 

2  Lafoantain  v.  Burlington  Savings  Bank,  56  Vt.  332,  ace.  See  also  Osborn  v.  First 
Nat.  Bank,  175  Pa.  494. 


J 

440  ROSE   V.  BUCKETT.  [CHAP.  V. 

within  the  meaning  of  the  30th  section  of  the  banking  act,  and  the  right 
of  action  never  passed  to  them  under  the  bankrupt  act,  then,  unless  the 
suit  has  been  barred,  the  bankrupts  may  sue  for  and  recover  the  money 
for  their  own  benefit,  when,  perhaps,  they  have  already  received  their 
full  exemptions  and  have  been  discharged  from  all  their  obligations. 

As  between  the  bankrupts  and  their  creditors,  this  would  be  unjust, 
and  such  a  result  is  not  easily  reconciled  with  the  chief  object  of  the 
bankrupt  law,  which  is  the  equal  distribution  of  the  insolvent  debtor's 
entire  estate  amongst  all  his  creditors. 

In  Gray  v.  Bennett,  supra,  "  it  is  very  clear,"  say  the  court,  "  that 
if  a  creditor  of  the  insolvent  debtor  should  attempt  to  prove  a  note 
under  the  commission,  it  would  be  the  duty  of  the  assignee  to  reduce 
the  amount,  if  usurious  interest  had  been  taken  on  it,  or  was  reserved 
in  it,  and  in  this  manner  the  creditors  would  be  benefited  by  such 
reduction.  Why  should  they  not  have  the  advantage  of  it  where  the 
debtor  was  paid  the  usurious  demand,  prior  to  the  insolvency  and 
within  the  time  limited  by  the  statute  for  recovering  it?  " 

I  think  the  assignees  are  the  "  legal  representatives  "  of  the  bank- 
rupts within  the  meaning  of  the  30th  section  of  the  banking  act ;  and 
that  the  right  of  action  given  by  that  section  is  a  "  claim  "  or  "  debt" 
which  passed  to  the  assignees  under  the  provisions  of  the  bankrupt 
law.  Demurrer  overruled.1 


ROSE  v.  BUCKETT. 
COURT  OF  APPEAL,  MAY  15,  16,  23,  1901. 

[Reported  in  [1901]  2  King's  Bench  Division,  449.] 

APPEAL  from  a  decision  of  GRANTHAM,  J. 

The  action  was  brought  by  the  grantor  of  a  bill  of  sale  for  trespass 
and  for  seizure  and  conversion  of  the  plaintiff's  goods.     By  his  state- 
;    ment  of  claim  (paragraphs  2,  3,  and  4)  the  plaintiff  alleged  that  on 
.1  f    three  different  occasions   the   defendant   Margaret   Buckett,    by   her 
agents  and  servants,  the  other  defendants,  had  wrongfully  entered  the 
plaintiff's  house,  and  had  remained  there  for  a  day  or  longer,  and  had 
wrongfully  seized  the  plaintiff's  furniture,  goods,  and  effects  which  were 
upon  the  premises,  and  had  refused  either  to  leave  the  premises  or  to 

1  In  addition  to  cases  cited,  see  Thomas  v.  Watson,  Taney,  297  ;  Louisville  Trust 
Co.  v.  Kentucky  Nat.  Bank,  87  Fed.  Rep.  143 ;  Henderson  Nat.  Bank  v.  Alves,  91  Ky. 
146  ;  Tamplin  v.  Wentworth,  99  Mass.  63  ;  Pearson  v.  Gooch,  69  N.  H.  571 ;  Wheelock 
v.  Lee,  64  N.  Y.  242  ;  Monongahela  Nat.  Bank  v.  Overholt,  96  Pa.  327  (conf.  Osborn  v. 
First  Nat.  Bank,  175  Pa.  494) ;  Moore  v.  Jones,  23  Vt.  739,  ace.  See  also  Re  Hoole,  3 
Fed.  Rep.  501 ;  First  Nat.  Bank  v.  Lasater,  196  U.  S.  115. 

In  Killen  v.  Barnes,  106  Wis.  546,  it  was  held  that  the  liabilities  of  bank  officials 
for  official  misconduct  passed  to  an  assignee  for  the  benefit  of  creditors. 


SECT.  IV.]  ROSE   V.  BUCKETT.  441 

give  up  the  said  goods  and  effects  when  requested  to  do  so,  but  bad 
converted  the  same  in  part  to  their  own  use. 

Paragraph  5  of  the  statement  of  claim  was  as  follows  :  — 

"  By  reason  of  the  foregoing  the  plaintiff  has  suffered  damage,  per- 
sonal inconvenience,  and  anno3Tance  to  himself  and  family,  by  being 
wrongfully  deprived  of  his  property  and  of  the  quiet  enjoyment  of  his 
house  and  premises  from  time  to  time  by  the  defendants  as  aforesaid." 

The  plaintiff  claimed  damages  from  the  defendants  "for  the  afore- 
said wrongful  entry  to  his  said  premises,  and  for  wrongful  seizure  and 
conversion  of  his  said  furniture,  goods,  and  effects  as  aforesaid.  The 
defendants  justified  their  conduct  under  the  provisions  of  section  7 
of  the  Bills  of  Sale  Act  Amendment  Act,  1882,  and  the}"  denied  the 
conversion.  The  plaintiff  in  reply  alleged  that  the  bill  of  sale  did  not 
comply  with  the  requisitions  of  the  Act. 

After  the  cause  was  set  down  for  trial  the  plaintiff  became  bankrupt, 
and  before  the  jury  were  sworn  the  defendants  applied  to  GRANTHAM,  J., 
for  an  order  to  stay  proceedings  in  the  action  upon  the  ground  that  all 
the  causes  of  action  had  become  vested  in  the  trustee  in  bankruptcy, 
the  official  receiver.  Upon  this  application  the  plaintiff  admitted  that 
no  substantial  damage  had  been  done  to  the  premises  or  to  the  goods, 
and  put  forward  the  personal  annoyance  to  himself  and  family  as  his 
main  ground  of  complaint.  The  learned  judge  thought  that  this  was 
not  a  case  in  which  the  plaintiff  could  claim  vindictive  damages,  and 
consequently  that  the  right  of  action  passed  to  the  trustee  in  bank- 
ruptcy. He  therefore  granted  a  stay  of  proceedings. 

The  plaintiff  appealed. 

W.  R.  Warren,  for  the  plaintiff.  The  question  is  whether  the  right  of 
action  in  this  case  passes  to  the  trustee  in  bankruptcy  or  remains  in  the 
bankrupt.  There  can  be  only  three  kinds  of  cause  of  action  here,  —  dam- 
age to  the  goods,  damage  to  the  premises,  and  damage  to  the  individual. 
It  is  admitted  that  there  was  no  damage  done  to  the  goods  or  the  prem-  &T*>f' 
ises,  and  the  only  cause  of  action  which  remains  is  damage  to  the 
individual.  In  an  action  of  trespass  the  plaintiff  has  a  cause  of  action 
for  annoyance  to  himself  and  family  occasioned  by  the  invasion  of  his 
property.  That  cause  of  action  remains  in  the  bankrupt  even  though 
there  are  other  claims  for  damage  to  property :  Clark  v.  Calvert, 
8  Taunt.  742,  3  Moo.  96,  21  R.  R.  528  ;  Beckham  v.  Drake,  2  H.  L. 
C.  579,  629,  634;  Spence  v.  Rogers,  11  M.  &  W.  191,  affirmed  sub 
nom.  Rogers  v.  Spence,  first  by  the  Court  of  Exchequer  Chamber,  18 
M.  &  W.  571,  and  ultimately  by  the  House  of  Lords,  12  01.  &  F.  700. 
Lord  Campbell  there  suggests  that  in  a  mixed  case  of  injury  to  the  per- 
son and  injury  to  the  property  the  law  would  give  an  action  to  the 
bankrupt  for  the  personal  injur}',  and  an  action  to  the  assignee  for  the 
injury  to  the  propert}*,  thereby  showing  that  the  damage  to  the  person 
and  the  damage  to  the  property  may  be  separated. 

[COLLINS,  L.  J.  Suppose  an  action  brought  for  trespass  and  judg- 
ment given  for  40s.,  could  you  then  bring  a  separate  action  for  the 
personal  annoyance  sustained  in  respect  of  the  same  trespass  ?] 


442  ROSE   V.   BUCKETT.  [CHAP.  V. 

Yes.  In  a  running-down  case  resulting  in  damage  to  the  plaintiff's 
cab  and  damage  to  his  person,  it  was  held  that  there  were  two  separate 
causes  of  action,  although  arising  out  of  the  same  tort  or  neglect  of  the 
defendant.  Brunsden  v.  Humphrey,  14  Q.  B.  D.  141.  So  here  the 
personal  anno3'ance  occasioned  by  the  trespass  is  a  separate  cause  of 
action. 

[COLLINS,  L.  J.  That  is  subject  to  the  question  whether  it  was  not 
an  aggravation  of  the  cause  of  action  in  respect  of  the  property.] 

Hodgson  v.  Sidney,  L.  R.  1  Ex.  313,  35  L.  J.  (Ex.)  182,  may  be 
cited  against  the  plaintiff,  but  it  is  distinguishable  from  the  present 
case.  That  was  an  action  for  a  false  representation  which  resulted  in 
a  direct  pecuniary  loss  to  the  plaintiff  of  £2,000,  and  the  personal 
annoyance  was  merely  subsidiary.  Here  the  personal  annoyance  is 
the  principal  ground  of  complaint. 

In  Brewer  v.  Dew,  11  M.  &  W.  625,  an  action  of  trespass,  in  which 
the  primary  cause  of  action  was  the  personal  annoyance  to  the  plaintiff, 
was  held  not  to  pass  to  the  assignees  in  bankruptcy.  That  was  an 
action  for  seizure  of  goods,  and  Lord  Abinger  there  intimated  that  the 
test  was  whether  the  jury  could  give  vindictive  damages  beyond  the 
value  of  the  goods ;  and  he  also  suggested  that  the  defendants  might 
have  limited  their  plea  so  as  to  make  it  good  by  stating  that,  so  far  as 
regards  the  value  of  the  goods,  the  plaintiff  had  lost  his  right  of  action 
by  his  bankruptcy.  Again,  in  Howard  v.  Crowther,  8  M.  &  W.  601, 
which  was  an  action  for  seduction  of  a  servant,  the  same  learned  judge 
said  that  assignees  in  bankruptcy  were  "  not  entitled  to  make  a  profit 
of  a  man's  wounded  feelings,"  and  he  held  that  the  right  to  sue  re- 
mained in  the  bankrupt.  That  principle  applies  here. 

.Blake  Odgers,  K.  C.,  and  Spokes,  for  the  defendants.  The  cause 
of  action,  as  appears  from  the  statement  of  claim  itself,  is  damage  to 
the  premises  and  goods,  and  the  allegation  of  personal  annoyance  flows 
from  that.  Can  it  be  said  that  any  one  of  the  plaintiff's  family  could 
bring  an  action  for  personal  inconvenience  arising  from  the  trespass  ? 
Where  the  cause  of  action  is  injury  to  property,  that  passes  to  the 
trustee  in  bankruptcj",  even  though  it  be  alleged  that  the  bankrupt  has 
suffered  personal  inconvenience,  provided  that  the  inconvenience  arises 
out  of  the  cause  of  action.  As  the  law  now  stands,  the  cause  of  action 
cannot  be  split.  It  is  one  and  indivisible,  and  it  passes  to  the  trustee  ; 
it  is  a  "thing  in  action  "  within  section  168  of  the  Bankruptcy  Act, 
1883.  The  personal  inconvenience  to  the  plaintiff  and  his  family  is 
alleged  as  a  piece  of  damage  arising  out  of  the  cause  of  action  pre- 
viously alleged.  The  cases  cited  on  behalf  of  the  plaintiff  were  decided 
under  a  totall}7  different  bankruptcy  law.  Under  the  bankruptcy  law 
in  force  at  the  time  when  Clark  v.  Calvert,  and  Rogers  v.  Spence  were 
decided,  a  lease  did  not  pass  to  the  bankrupt's  assignees  unless  they 
elected  to  take  it,  and  that  is  the  true  ground  of  those  decisions ;  but 
now  the  lease  passes  to  the  trustee  unless  he  disclaims.  The  expres- 
sion "  things  in  action"  appears  first  in  the  Bankruptcy  Act  of  1869, 


SECT.  IV.]  ROSE   V.   BUCKETT.  443 

and  it  is  repeated  in  the  Act  of  1883.  Formerly  it  was  only  a  cause 
of  action  by  which  the  estate  of  the  bankrupt  was  diminished  that 
passed  to  his  assignees.  Now  the  presumption  is  that  everything 
which  the  bankrupt  has  passes  to  his  trustee,  the  only  exception  being 
where  the  action  is  of  an  entirely  personal  character,  e.  g.,  an  action 
for  assault.  It  may  be  that  in  such  a  case  the  right  of  action  would 
remain  in  the  bankrupt;  though,  strictly  speaking,  "  things  in  action" 
would  include  that  also.  Trespass  to  lands  and  trespass  to  goods  go 
to  the  trustee  in  bankruptcy,  and  the  mere  fact  that  personal  annoyance 
has  resulted  therefrom  makes  no  difference.  Brewer  v.  Dew  is  dis- 
tinguishable because  it  was  there  alleged  that  the  trespass  was  com- 
mitted under  a  false  allegation  of  right,  whereas  in  this  case  no  wilful 
wrong  is  imputed  to  the  defendants.  Further,  it  is  inconsistent  with 
Hodgson  v.  Sidney,  which  shows  that  where,  as  here,  the  cause  of 
action  is  infringement  of  a  right  of  property,  it  passes  to  the  assignee, 
and  with  it  must  go  any  ancillary  claim  for  personal  inconvenience  to 
the  bankrupt  and  his  family.  Hodgson  v.  Sidney  has  since  been  fol- 
lowed by  the  majority  of  the  court  in  Morgan  v.  Steble,  L.  R.  7  Q.  B. 
611.  In  Brunsden  v.  Humphrey,  two  distinct  rights  were  infringed. 
Since  the  Bankruptcy  Act  of  1869  the  courts  have  put  a  wider  inter- 
pretation upon  what  passes  to  the  trustee  in  bankruptcy.  Wadling 
v.  Oliphant,  1  Q.  B.  D.  145 ;  Emden  v.  Carte,  17  Ch.  D.  169,  768  ; 
Metropolitan  Bank  v.  Pooley,  10  App.  Gas.  210. 

[STIRLING,  L.  J.  Exparte  Vine,  8  Ch.  D.  364,  shows  that  the  Bank- 
ruptcy Act,  1869,  did  not  affect  the  rule  that  a  cause  of  action  for 
injury  to  personal  reputation  does  not  pass  to  the  trustee. 

[COLLINS,  L.  J.  The  law  is  so  stated  in  Baldwin  on  Bankruptcy, 
8th  eel.,  p.  292,  and  Williams  on  Bankruptcy,  7th  ed.,  p.  200.] 

Warren,  in  reply.  The  right  of  action  in  respect  of  the  invasion  of 
the  plaintiff's  quiet  enjoyment  of  the  property  remains  in  the  bankrupt. 
It  is  a  merely  personal  right ;  it  would  not  pass  to  his  legal  personal 
representatives,  and  it  is  not  assignable.  Hill  v.  Bovle,  L.  R.  4  Eq. 
260  ;  Prosser  v.  Edmonds,  1  Y.  &  C.  Ex.  481  ;  Wood  v.  Downes,  18 
Ves.  120,  11  R.  R.  160.  For  the  purpose  of  maintaining  an  action  of 
trespass  it  is  immaterial  whether  there  be  any  actual  damage  or  not. 
"  Ever}'  invasion  of  private  property,  be  it  ever  so  minute,  is  a  tres- 
pass." Entick  v.  Carrington,  19  State  Trials,  1030,  1066.  In  Ashby 
v.  White,  2  Ld.  Raym.  938,  it  was  held  that  a  man  who  lias  a  right  to 
vote  at  an  election  of  members  of  Parliament  can  maintain  an  action 
against  the  returning  officer  for  refusing  to  admit  his  vote,  even  though 
the  persons  for  whom  he  offered  to  vote  were  elected. 

Cur.  adv.  vult. 

May  23.  COLLINS,  L.  J.  This  case  appeared  to  raise  a  point  of 
some  difficult}",  upon  which  the  authorities  were  not  easy  to  reconcile, 
and  we  therefore  took  time  to  look  into  them.  The  action  was  for  tres- 
pass and  conversion  of  the  plaintiff's  goods,  and  damages  were  claimed 
in  addition  for  the  personal  annoyance  caused  thereby  to  the  plaintiff. 


444  ROSE  V.  BUCKETT.  [CHAP.  V. 

After  the  cause  was  entered  for  trial  the  plaintiff  became  bankrupt,  and 
on  application  made  to  GRANTHAM,  J.,  before  the  jury  were  sworn,  he 
stayed  all  proceedings,  on  the  ground  that  all  causes  of  action  were 
vested  in  the  trustee  in  the  bankruptcy,  i.  e.,  the  official  receiver. 
From  this  order  the  plaintiff  appeals. 

The  general  principles  which  determine  whether  a  cause  of  action 
does  or  does  not  pass  to  the  trustee  in  bankruptcy  are  well  settled,  and 
may  be  stated  in  the  language  of  Parke,  B.,  in  Beckham  v.  Drake, 
2  H.  L.  C.  579,  637  :  "  What  then  is  the  proper  construction  of  this 
section  of  the  Act"  (».  e.,  §  63  of  the  Act  6  Geo.  IV.  c.  16)  "  according 
to  its  words  and  the  several  cases  decided  upon  it  ?  The  proper  and 
reasonable  construction  appears  to  me  to  be,  that  thejstatute  transfers 
not  all  rights  of  action  which  would  pass  to  executors  (for  rights  in- 
capable of  being  converted  into  mono}-,  such  as  the  next  presentation 
to  a  void  benefice,  pass  to  them),  but  all  such  as  would  be  assets  in 
their  hands  for  the  payment  of  debts,  and  no  others  —  all  which  could 
be  turned  to  profit,  for  such  rights  of  action  are  personal  estate.  Of 
such  the  executor  is  assignee  in  law ;  and  the  nature  of  the  office  and 
dut}r  of  a  bankrupt's  assignee  requires  that  he  should  have  them  also. 
But  rights  of  action  for  torts  which  would  die  with  the  testator,  accord- 
ing to  the  rule  '  Actio  personalis  moritur  cum  persona,'  and  all  actions 
of  contract  affecting  the  person  only,  would  not  pass.  Of  such  the 
executor  is  not  assignee  in  law ;  and,  whatever  may  be  the  reason  of 
the  law  which  prohibits  him  from  being  so,  it  seems  equally  to  apply  to 
a  bankrupt's  assignee.1  It  is  admitted  in  the  present  case  that  the 


1  In  the  following  cases  the  right  of  action  was  held  personal  and  not  to  pass : 
Malicious  prosecution :  Re  Haensell,  91  Fed.  Rep.  355  ;  Wright  v.  First  Nat.  Bank, 
18  B.  B.  87,  89;  Noonan  v.  Orton,  34  Wis.  259  (see  also  Francis  v.  Burnett,  84  Ky. 
23) ;  personal  injuries  caused  by  negligence:  Stone  v.  Boston  &  Maine  R.  R.,  7  Gray, 
539  (see  also  Rice  v.  Stone,  1  Allen,  566;  Bennett  v.  Sweet,  171  Mass.  600) ;  negli- 
gence of  an  attorney  leading  to  the  debtor's  imprisonment:  Wetherell  v.  Julius,  10 
C  B.  267;  slander  or  libel:  Benson  v.  Flower,  W.  Jones,  215;  Dillard  v.  Collins, 
25  Gratt.  343 ;  North  v.  Turner,  9  S.  &  R.  244,  249 ;  Bowling  v.  Browne,  4  Ir.  C.  L. 
265 ;  malicious  attachment  or  distress,  or  other  abuse  of  legal  process :  Stanley  v. 
Duhurst,  2  Root,  52  ;  O'Donnel  v.  Seybert,  13  S.  &  R.  54 ;  Sommer  v.  Wilt,  4  S.  &.  R. 
19,  28;  seduction:  Buss  v.  Gilbert,  2  M.  &  S.  70;  fraudulent  representations:  Re 
Crockett,  2  Ben.  514;  Re  Brick,  4  Fed.  Rep.  804;  Tufts  v.  Mathews,  10  Fed.  Rep. 
609  (see  also  Shoemaker  v.  Kelley,  2  Dall.  213;  Byxbie  v.  Wood,  24  N.  Y.  607); 
the  right  to  disaffirm  a  contract  made  by  the  bankrupt  when  a  minor :  Mansfield  v. 
Gordon,  144  Mass.  168. 

The  right  of  action  has  been  held  to  pass  in  the  case  of  conversion  :  Ouchterlong 
v.  Gibson,  5  M.  &  G  579  ;  Lovell  v.  Hammond  Co.,  66  Conn.  500 ;  or  trespass  to  goods : 
North  v.  Turner,  9  S.  &  R.  244,  249.  And,  inconsistently  with  some  of  the  American 
cases  cited  in  the  preceding  paragraph,  the  English  courts  have  held  that  if  a  prop- 
erty injury  is  the  gist  of  the  injury  a  right  of  action  passes,  whether  based  on  deceit : 
Hodgson  v.  Sidney,  L.  R.  1  Ex.  313;  Twycross  v.  Grant,  4  C.  P.  D.  40;  Warder  v. 
Saunders,  10  Q.  B.  D.  114;  negligence  of  an  attorney:  Wetherell  v.  Julius,  10  C.  B. 
267 ;  Morgan  v.  Steble,  L.  R.  7  Q.  B.  611  ;  Re  Daines,  16  L.  T.  N.  s.  127  ;  Crauford 
v.  Cinnamond,  Ir.  R.  1  C.  L.  325 ;  or  malicious  institution  of  bankruptcy  proceedings: 
Metropolitan  Bank  v.  Pooley,  10  A.  C.  210. 

Ajudgment,  though  based  on  a  claim  for  infringement  of  a  personal  right,  passes. 


SECT.  IV.]  ROSE   V.    BUCKETT.  445 

damage  to  the  land  and  goods  was  merel}-  nominal,  and,  if  substantial 
damages  could  be  recovered  at  all.  it  would  be  for  the  ahno}'ance  and 
personal  inconvenience  caused  to  the  bankrupt,  and  it  was  contended, 
therefore,  for  the  plaintiff  that  the  cause  of  action  remained  in  the 
bankrupt  and  did  not  pass  to  his  trustee.  On  the  other  hand,  Mr. 
Odgers  contended  that  the  action  was  one  of  trespass  to  the  land  and 
conversion  of  the  chattels  of  the  plaintiff,  which  imported  some  injury 
to  his  estate,  the  damages  for  which,  even  though  nominal  only,  would, 
therefore,  pass  to  the  trustee,  and  that  the  annoyance,  &c. ,  was  not 
itself  a  cause  of  action,  but  only  damage  flowing  from  the  original  cause 
of  action,  which  was  single  and  passed  to  the  trustee.  This  raised  a 
question  as  to  the  possibility  of  dividing  a  cause  of  action,  and  leaving 
one  part  to  be  sued  on  by  the  bankrupt  and  the  other  by  the  trustee, 
and  Brewer  v.  Dew,  Rogers  v.  Spence,  and  Hodgson  v.  Sidney,  fol- 
lowed by  Morgan  v.  Stebie,  were  cited.  It  is  not,  however,  necessa^, 
in  my  opinion,  to  review  these  authorities,  or  to  determine  the  vexed 
question  left  undecided  by  Parke,  B.,  in  Beckham  v.  Drake,  and  Lord 
Campbell  in  Rogers  v.  Spence,  12  Cl.  &  F.  700,  720  ;  for  I  think  this 
case  stands  clear  of  the  difficulty  which  would  arise  where  one  and  the 
same  cause  of  action  results  in  substantial  damage  to  the  property  of 
the  bankrupt  as  well  as  injury  to  his  person  or  anno3'ance  to  his  feel- 
ings. Where  the  damages  to  property  by  trespass  and  conversion  are 
merel}*  nominal,  the  cause  of  action  in  respect  thereof  is  not  regarded 
as  one  affecting  the  value  of  the  property  passing  to  the  trustee,  so  as 
to  give  him  a  right  of  action  in  respect  thereof,  but  rather  as  a  wrong 
personal  to  the  bankrupt  himself,  which  could  not  found  an  action  by 
his  trustee.  This  view  is  well  put  by  Cresswell,  J.,  in  his  opinion 
delivered  to  the  House  of  Lords  in  Beckham  v.  Drake,  2  H.  L.  C.  579, 
613,  summing  up  the  result  of  Clark  v.  Calvert,  8  Taunt.  742,  21  R.  R. 
228  ;  Rogers  u.  Spence,  and  Brewer  v.  Dew.  He  says  :  "  In  Clark  v. 
Calvert,  Rogers  v.  Spence,  and  Brewer  v.  Dew,  11  M.  &  W.  625,  ji 
wus  decided  that  rights  of  action  for  trespass  to  land  or  goods  in  the 
actual  possession  of  a  trader  do  not  pass  to  his  assignees  if  he  becomes 
bankrupt,  because  those  rights  of  action  are  given  in  respect  of  the 
immediate  and  present  violation  of  the  possession  of  the  bankrupt, 
independently  of  his  rights  of  property,  and  are  an  extension  of  the 
protection  given  to  his  person,  and  the  primary  personal  injury  to  the 
bankrupt  is  the  principal  and  essential  cause  of  action."  Passages  to 
similar  effect  in  different  language  will  be  found  in  the  opinions  of  the 
other  judges.  See,  in  particular,  Parke,  B. ,  2  H.  L.  C.  626;  Wilde, 
C.  J.,  2  H.  L.  C.  634.  These  opinions  are  specially  valuable  coming 
from  judges  some  of  whom  had  taken  part  in  the  cases  referred  to, 

See  Ex  parte  Charles,  14  East  197 ;  Buss  v.  Gilbert,  2  M.  &  S.  70;  Beckham  v.  Drake, 
2  H.  L.  C.  579;  Rice  v.  Stone,  1  Allen,  566. 

The  question  involved  in  the  cases  in  this  note  is  somewhat  .analogous  to  the  ques- 
tion  of  what  rights  survive  to  the  executor  or  are  assignable  at  the  will  of  the  person 
entitled  daring  his  life.  The  cases  on  the  broader  question  are  fully  collected  in  44 
L.  R.  A.  177. 


. 

446  BECKHAM   V.   DRAKE.  [CHAP.  V. 

and  summarizing  their  effect,  and  they  negative  the  technical  ground 
on  which  alone  Mr.  Odgers  contends  that  Clark  v.  Calvert,  and  Rogers 
u.  Spence,  were  decided  —  namely,  that  under  the  then  statute  the 
assignees,  unless  they  interfered,  took  no  interest  in  land  let  to  the 
bankrupt. 

GRANTHAM,  J.,  treated  the  action  as  one  that  could  not  under  the 
circumstances  give  rise  to  "  vindictive"  damages,  and  therefore  as  not 
falling  within  the  test  applied  by  Lord  Abinger  in  Brewer  v.  Dew  as 
determining  that  the  right  to  sue  remained  in  the  bankrupt.  But  the 
damages  claimed  here,  whether  the  facts  will  support  the  claim  or  not, 
are  technically  vindictive  in  the  sense  in  which  Lord  Abinger  used  the 
word  —  that  is  to  say,  they  are  not  merely  compensation  for  damage 
to  land  or  goods,  but  something  more,  and,  so  far  as  they  are  more, 
they  are  in  character  vindictive  in  the  legal  sense ;  but,  as  I  have 
already  shown,  even  if  the  damages  were  nominal  only,  the  cause  of 
action  remains  in  the  bankrupt.  I  am  of  opinion,  therefore,  that  the 
action  here  is  one  in  which,  in  the  words  of  Cresswell,  J.,  above  cited, 
"  the  primary  personal  injury  to  the  bankrupt  is  the  principal  and 
essential  cause  of  action,  and,  though  the  facts,  as  far  as  one  can  sur- 
mise them  from  the  pleadings  and  materials  before  GRANTHAM,  J.,  make 
vindictive  damages  in  the  popular  sense  improbable,  we  should  not  be 
justified  in  interfering  with  the  plaintiffs  right  to  have  the  stay  re- 
moved if  the  cause  of  action  is  in  point  of  law  vested  in  him  notwith- 
standing his  bankruptcy.  I  think  the  appeal  must  be  allowed.1 


BECKHAM  v.   DRAKE. 

HOUSE  OF  LORDS.  MAT,  1847;   JULY,  1849. 

[Reported  in  2  House  of  Lords  Cases,  579.] 

THIS  was  a  writ  of  error  upon  a  judgment  of  the  Exchequer  Cham- 
ber 2  reversing  a  judgment  for  the  plaintiff  of  the  Exchequer  of  Pleas,8 
in  an  action  of  assutnpsit.  Beckham  entered  into  an  agreement  with 
Knight  and  Surgey  to  serve  them  for  seven  years  at  three  guineas 
weekly,  "the  party  making  default  to  pay  to  the  other  the  sum  of  £500 
by  way  or  in  nature  of  specific  damages."  Beckham  was  dismissed 
and  became  bankrupt.  After  the  bankruptcy  he  brought  this  action. 
The  defendants  pleaded  his  bankruptcy,  to  which  the  plaintiff  demurred.4 

Baron  PARKE.  The  question  proposed  by  your  Lordships  is,  whether 
the  plaintiff  or  the  defendant  in  error  is  entitled  to  judgment. 

1  Stirling,  L.  J.,  delivered  a  brief  concurring  opinion.     See  Ex  parte  Graham,  21 
L.  T.  N.  s.  802,  ace.,  in  addition  to  cases  cited  in  Rose  v.  Buckett. 
28M.  &W.  846.  811M.&W.  315. 

4  The  statement  of  facts  has  been  abbreviated. 


SECT.  IV.]  BECKHAM   V.   DKAKE.  447 

It  was  my  duty  to  deliver  the  judgment  of  the  Court  of  Exchequer, 
consisting  of  my  brothers  ALDERSON,  ROLFE,  my  late  brother  GURNET, 
and  myself,  when  this  case  was  decided  by  that  court  (8  M.  &  W.  846), 
and  to  assign  the  reasons  which  induced  me  to  form  the  opinion  then 
expressed.  The  discussion  of  the  case  on  the  writ  of  error  at  your 
Lordships'  bar,  and  the  subsequent  consideration  of  it,  and  of  the 
judgment  of  the  Exchequer  Chamber,  have  induced  me  to  think  that 
the  reasons  so  assigned  by  me  are  insufficient. 

One  of  the  causes  that  has  led  me  to  doubt  the  propriety  of  that  de- 
cision is,  that  a  penalty  is  given  for  the  non-performance  of  this  agree- 
ment ;  for  it  is  clear  that,  according  to  the  cases  of  Kemble  v.  Farren, 
6  Bing.  141  (see  Thompson  v.  Hudson  L.  R.  4  H.  L.  1,  and  others), 
though  the  sum  of  £500  is  said  to  be  for  "  specific  damages,"  it  is  to  be 
construed  as  a  penalty ;  and  whether  that  penalty  would  vest  in  the 
assignees  under  the  circumstances  of  this  case,  is  a  question  which  I 
propose  afterwards  to  consider.  But  I  assume  for  the  present  that  the 
case  is  in  the  same  position  as  if  there  was  no  penalty ;  on  which  foot- 
ing it  has  been  argued  at  your  Lordships'  bar  and  in  the  court  below. 
I  would  premise  that  it  is  not  necessary  to  say  anj'thmg  upon  a  question 
discussed  in  the  court  below,  whether  all  the  defendants  are  liable  upon 
a  contract,  though  in  writing,  made  by  one  in  reality  on  his  own  behalf, 
and  as  agent  for  the  others.  There  is  now  no  doubt  upon  this  point; 
both  the  courts  below  concur  in  this  respect ;  nor  was  it  disputed  in 
the  argument  here.  The  principal  question  in  the  case  on  the  above- 
mentioned  assumption  is,  whether  the  right  of  action  for  a  breach  before 
bankruptcy  of  such  a  contract  as  this,  for  the  personal  services  of  the 
bankrupt,  passes  to  the  assignees. 

The  general  question  turns  on  the  6th  Geo.  IV.  c.  16,  §  63,  which 
must  be  construed  with  the  aid  of  the  twelfth  section,  and  with  that  of 
former  decisions  upon  the  repealed  statutes  relative  to  bankrupts.  By 
that  section,  "  all  the  present  and  future  personal  estate  of  the  bank- 
rupt, wheresoever  found  or  known,  and  all  property  which  he  may  pur- 
chase, or  which  may  revert,  descend,  be  devised  or  bequeathed  to,  or 
come  to  him  before  he  shall  have  obtained  his  certificate,  and  all  debts 
due  or  to  be  due  to  him,  wheresoever  the  same  shall  be  found  or  known, 
are_assigned,  and  such  assignment  is  to  vest  the  property,  right,  and 
interest  in  such  debts,  as  fully  as  if  the  assurance  whereby  they  are 
secured  had  been  made  to  the  assignees,  and  they  have  the  same  remedy 
to  recover  as  the  bankrupt  would  have  had.  " 

A  former  section  (12)  enabled  the  Lord  Chancellor  to  appoint  com- 
missioners, with  full  power  and  authority  to  make  such  order  and  direc- 
tion as  to  the  lands,  moneys,  fees,  offices,  annuities,  goods,  chattels, 
wares,  merchandises,  and  debts,  wheresoever  they  may  be  found  and 
known.  The  two  sections  are  to  be  read  together. 

It  is  not  disputed  that  the  rights  of  the  assignee  under  the  statute 
law  are  not  identical  with,  nor  are  they  so  extensive  as  those  of  an  exe- 
cutor, who  stands  in  the  place  of  his  testator,  and  represents  him  as  to 


448  BECKHAM   V.   DRAKE.  [CHAP.  Y. 

all  his  personal  contracts,  and  is  by  law  his  assignee  (Wentworth  Off. 
Exor.  100),  and,  therefore,  may  maintain  any  action  in  hie  right  which 
he  himself  might  (Bac.  Abr.  Executors  N  ).  That  must  be  understood 
to  mean  an}'  action  on  a  contract,  for  an  executor  never  could  sue  for 
wrongs  to  his  testator  ;  "  actio personalis  moritur  cum, persona"  And 
with  respect  to  contracts,  some  exceptions  have  been  introduced  by 
modern  decisions:  Chamberlain  v.  Williamson,  2  M.  &  S.  408;  King- 
don  v.  Nottle,  1  M.  &  S.  355,  and  4  M.  &  S.  53  ;  as  explained  by  Lord 
Abiuger  in  the  case  of  Raymond  v.  Fitch,  2  Cromp.  M.  &  R.  598, 
599 ;  and  the  executor  cannot  sue  upon  contracts  the  breach  of  which 
is  a  mere  personal  wrong.  The  executor  takes  all  the  other  personal 
rights  of  a  testator,  as  a  consequence  of  his  representative  character, 
whether  they  are  available  for  the  payment  of  debts  or  not,  for  his 
liability  to  pay  debts  is  the  consequence,  not  the  object,  of  the  appoint- 
ment. The  assignee  is  created  by  statute,  for  the  purpose  of  recover- 
ing and  receiving  the  estate,  and  paying  the  debts  of  the  bankrupt,  and 
takes  only  what  the  statute  gives  for  that  purpose.  What  then  does  it 
give  ?  It  clearly  gives  in  the  section  above  mentioned,  not  merel}'  all 
personal  chattels,  securities  for  money,  and  debts  -properly  so  culled, 
but  all  unexecuted  contracts  which  the  assignee  could  perform,  the  per- 
formance of  which  would  be  beneficial  to  the  bankrupt's  estate.  These 
are  "  personal  estate."  The  assignee  takes,  in  the  language  of  Lord 
Tenterden  in  Wright  v.  Fail-field,  2  B.  &  Ad.  732,  all  "the  beneficial 
matters "  belonging  to  the  bankrupt ;  or,  as  Mir.  Justice  Buller  said, 
"anything  belonging  to  the  bankrupt  that  can  be  turned  to  profit." 
Smith  v.  Coffin,  2  H.  Bl.  462. 

This  contract,  if  unexecuted,  would  clearly  not  have  passed  to  the 
assignees.  But  the  question  is,  not  whether  the  contract,  but  whether 
the  right  of  action  for  the  breach  of  it  before  the  bankruptcy,  passed. 
The  words  "personal  estate"  clearly  comprise  all  chattels,  chattel  in- 
terests, and  all  the  subjects  mentioned  in  the  twelfth  section  ;  and  they 
also  comprise  some  rights  of  action  which  are  not  properly  debts,  and 
would  not  pass  under  the  word  "  debts,"  but  do  pass  under  the  descrip- 
tion of  "  personal  estate." 

For  instance,  some  actions  for  torts  do  pass.  Actions  for  injuries 
to  personal  chattels,  whereby  they  are  directly  affected,  and  are  pre- 
vented from  coming  to  the  hands  of  the  assignee,  or  come  diminished 
in  value,  undoubtedly  pass.  The  action  of  trover  for  a  conversion  be- 
fore the  bankruptcy  is  a  familiar  instance  of  this. 

On  the  other  hand,  rights  of  action  for  injuries  to  the  person,  or 
reputation,  or  the  possession  of  real  estate,  do  not  pass.  Actions  of 
assault,  for  example,  and  for  defamation,  actions  on  the  case  for  mis- 
feasance, doing  damage  to  the  person,  for  trespass  quare  clausum  fre- 
git  (Rogers  v.  Spence,  13  M.  &  W.  571 ;  affirmed  in  this  House,  12 
Clark  &  Finnelly,  700),  actions  for  criminal  conversation  with  the  wife, 
or  seduction  of  the  servant  or  daughter  of  the  bankrupt,  are  not  trans- 
ferred to  the  assignee,  even  though  some  of  these  causes  of  action  may 


SECT.  IV.]  BECKHAM   V.   DRAKE.  449 

be  followed  by  a  consequential  diminution  of  tne  personal  estate,  as 
where  by  reason  of  a  personal  injury  a  man  has  been  put  to  expense, 
or  has  been  prevented  from  earning  wages  or  subsistence  ;  or  where 
by  the  seduction  the  plaintiff  has  been  put  to  expense.  Howard  v. 
Crowther,  8  M.  &  W.  601.  But  with  respect  to  contracts ;  rights  of 
action  for  the  breach  of  such  as  directly  affect  the  personal  estate, 
whereby  the  assignee  is  prevented  from  receiving  part  of  it,  or  its  value 
is  diminished,  are  certainly  transferred  ;  as  for  example,  rights  of  action 
on  a  beneficial  contract,  whereby  one  engaged  to  sell  and  deliver  goods 
to  the  bankrupt,  and  which,  if  performed,  would  have  put  him  in  the 
possession  of  the  goods,  or  a  contract  with  another  to  carry  or  take  care 
of  the  goods  of  the  bankrupt  which  are  lost,  or  injured,  and  thereby 
diminished  in  value. 

On  the  other  hand,  actions  for  the  breach  of  contracts  personal  to 
the  bankrupt,  unaccompanied  by  an  injury  to  the  personal  estate,  as  a 
contract  to  carry  him  in  safety,  to  cure  his  person  of  a  wound  or  dis* 
ease,  or  a  contract  with  a  person,  who  subsequently  becomes  bankrupt, 
to  marry,  are  certainly  not  assigned.  This  is  conceded  ;  but  it  is  ques- 
tioned on  the  part  of  the  defendant  in  error,  I  think  without  sufficient 
ground,  whether  the  assignee  would  not  be  entitled  to  sue  in  an}-  of 
these  cases,  if  the  personal  estate  was  consequent!}'  damaged,  as  where 
the  bankrupt  was  put  to  expense  by  the  breach  of  contract,  or  lost  the 
power  of  earning  money. 

What  then  is  the  proper  construction  of  this  section  of  the  Act, 
according  to  its  words  and  the  several  cases  decided  upon  it  ?  The 
proper  and  reasonable  construction  appears  to  me  to  be  that  the  statute 
transfers  not  all  rights  of  action  which  would  pass  to  executors  (for 
rights  incapable  of  being  converted  into  money,  such  as  the  next  pres- 
entation to  a  void  benefice,  pass  to  them),  but  all  such  as  would  be 
assets  in  their  hands  for  the  payment  of  debts  and  no  others,  —  all 
which  could  be  turned  to  profit,  for  such  rights  of  action  are  personal 
estate.  Of  such  the  executor  is  assignee  in  law ;  and  the  nature  of  the 
office  and  duty  of  a  bankrupt's  assignee  requires  that  he  should  have 
them  also.  But  rights  of  action  for  torts  which  would  die  with  the 
testator,  according  to  the  rule,  actio  personalis  moritur  cum  persond, 
and  all  actions  of  contract  affecting  the  person  only,  would  not  pass. 
Of  such  the  executor  is  not  assignee  in  law  ;  and  whatever  may  be  the 
reason  of  the  law  which  prohibits  him  from  being  so,  seems  equally  to 
apply  to  a  bankrupt's  assignee. 

According  to  this  rule,  the  description  of  contracts  upon  which  the 
right  of  action  is  transferred,  would  include,  but  would  not  be  restricted 
to,  such  as  directly  affect  some  chattel  or  subject  of  property  which 
would  pass  to  the  assignees,  or  to  such  as  would,  if  they  had  been  per- 
formed, have  produced  such  property,  which  alone,  it  was  argued  at 
your  Lordships'  bar,  would  be  transferred  by  the  statute ;  and  this  was 
in  accordance  with  the  view  I  took  in  the  court  below.  I  think,  upon 
subsequent  reflection,  that  this  is  too  narrow  a  construction  of  the 


450  BECKHAM   V.   DRAKE.  [CHAP.  V. 

statute,  and  that  it  applies  to  all  contracts  for  the  breach  of  which  an 
executor  could  sue,  which  could  be  turned  to  profit  for  the  pa3'tnent  of 
creditors.  And  if  this  be  the  true  construction  of  the  statute,  if  all  the 
damages  for  this  breach  of  contract  could  have  been  recovered  b}"  an 
executor,  the  assignee  could  recover  them,  and  the  plea  would  be  a 
good  plea  in  bar. 

But  if  part  was  recoverable  for  the  personal  inconvenience  of  the 
bankrupt,  a  different  question  presents  itself.  I  think  this  contract 
cannot  be  said  not  to  relate  in  any  part  to  the  person  of  the  bankrupt, 
but  that  his  personal  inconvenience  and  trouble  in  looking  out  for  a 
new  employment  would  be  part  of  the  damages  recovered.  If  so,  that 
part  could  not  be  transferred  to  the  assignees,  and  ought  not  to  be  lost ; 
the  right  to  those  damages,  which  would  be  lost  in  the  case  of  a  tes- 
tator's death  altogether,  continues  in  the  bankrupt.  It  is  upon  this 
point  that  the  case  appears  to  me  to  turn.  Who  then  are  to  sue  for  the 
breach  of  contract  where  part  belongs  to  the  assignee,  part  to  the  bank- 
rupt ?  Who  would  have  to  sue  if  the  contract  was  to  cure  the  bankrupt 
of  a  disease,  and  give  him  a  sum  of  money,  and  there  had  been  a 
breach  of  both  parts,  which  appears  to  me  to  be  a  similar  question  ? 
It  is  extremely  difficult  to  say  in  whom  the  right  of  action  would  be. 

Either  the  right  of  action  on  the  contract  must  be  divided,  and  each 
sue,  or  the  right  of  action  altogether  must  remain  in  the  bankrupt,  or 
altogether  be  transferred  to  the  assignees,  or  both  must  join,  the  con- 
tract being  entire,  to  sue  for  the  damages.  In  the  first  two  cases  the  plea 
would  be  good,  in  the  last  two  bad;  for  in  the  first  it  would  be  no  an- 
swer to  the  entire  cause  of  action  ;  in  the  second,  it  would  be  no  answer 
to  an}r  part.  I  should  feel  considerable  difficulty  in  deciding  the  ques- 
tion, but  this  case  does  not  depend  upon  it,  for  I  have  now  to  consider 
what  the  effect  of  the  penalt}'  is. 

This  subject  was  not  discussed  at  your  Lordships'  bar,  and  was  little 
adverted  to  in  the  court  below. 

At  common  law  the  penalty  would  have  been  forfeited,  and,  being  a 
sum  certain,  would  have  passed  to  the  assignees  ;  for,  at  the  time 
of  the  bankruptcy  it  would  have  been  uncertain  whether  the  defendant 
would  ever  have  filed  a  bill  for  relief,  supposing  he  could  have  done  so  ; 
and  a  sum  certain,  defeasible  on  an  uncertain  event,  would  have  been, 
until  defeated,  personal  estate,  and  would  certain!}'  vest  in  the  assig- 
nees. But  the  question  is,  whether  the  Stat.  8  &  9  Wm.  III.  c.  11,  has 
not  made  an  alteration.  That  statute  in  effect  makes  the  bond  a 
security  only  for  the  damages  really  sustained.  If  all  the  damages 
would  be  recoverable  by  the  assignees,  the  penalty  would  pass ;  if 
none,  the  penalty  could  not  be  levied,  and  therefore  could  not  be  avail- 
able for  the  payment  of  creditors,  and  probably  would  not  pass  to  the 
assignees.  If  part  of  the  damages  could  be  recovered  by  the  assignees, 
and  part  not,  the  question  is  different.  The  penalty  would  then  be  a 
security  for  damages  partly  belonging  to  the  assignees,  partly  to  the 
bankrupt.  It  would  be  like  the  case  of  a  bond  to  the  bankrupt  con- 


SECT.  IV.]  GIBSON   V.   CARRUTIIERS.  451 

ditioned  not  to  assault  him,  and  to  pay  him  a  sum  of  money,  forfeited 
in  both  respects  before  the  bankruptcy  ;  and  I  have  had  some  difficulty 
in  saying  whether  the  right  of  action  on  such  a  bond  would  or  would 
not  pass  to  the  assignees. 

But  it  seems  to  me  to  be  clear  that  the  penaltj',  which  is  an  entire 
thing,  could  not  be  divided,  so  that  each  could  sue  for  a  part  ;  and  it 
could  not  be  predicated  what  part  would  pass  to  each.    It  follows,  there- 
fore,  that  either  the  right  to  the  entire  penalty  must  remain  in  the 
bankrupt,  or  that  either  both  the  bankrupt  and  the  assignee  must  join, 
as  being  both  interested,  or  that  the  right  to  sue  goes  to  the  assignees, 
in  order  to  secure  such  part  of  the  damages  as  is  the  personal  estate  of 
the  bankrupt  vested  in  them.     1^  cannot  help  thinking  that  both  ought 
to  sue,  as  they  would  do  if  the  bankrupt  before  his  bankruptcy  had 
assigned  a  part  of  an  entire  debt  as  a  security  to  a  creditor,  and  conse-     - 
quently  was  a  trustee  for  him  for  that  part.     But,  at  all  events,  I  do    ' 
not  think  the  right  to  the  penalty  would  remain  in  the  bankrupt;  and 
therefore,  the  plea  is  a  good  plea,  as  it  shows  that  the  bankrupt  could  Q/y  §JJl*\  h 
not  sue  ftJopeT" 


Therefore,  in  either  view  of  the  case,  I  now  think  the  judgment  of  - 
the  Court  of  Exchequer  should  be  reversed,  and  the  judgment  of  the  - 
Exchequer  Chamber  affirmed.     If  the  whole  of  the  damages  are  part  of 
the  personal  estate  which  passed  to  the  assignees,  the  plaintiff  was 
barred  ;  if  some  were,  and  some  were  not,  still  for  the  reasons  before 
mentioned  the  plea  appears  to  me  to  be  good,  and  my  opinion  which  I 
expressed  in  the  court  below  was  wrong. 

My  opinion  now,  therefore,  is,  that  the  plea  of  the  plaintiffs  bank- 
ruptcy is  a  good  bar,  and  that  the  judgment  of  the  Exchequer  Chamber 
ought  to  be  affirmed.1 


GIBSON  v.   CARRUTHERS.  £^ 
EXCHEQUER,  MAY  3,  1841. 

[Reported  in  8  Aleeson  $•  Welsby,  321.] 

V 
PARKE,  B.     In  this  case  the  assignees  sue  on  a  contract  made  between  hty     \^V 

the  defendant  and  the  bankrupt,  by  which  the  bankrupt  contracts  to 
chartex  and  send  a  vessel  from  London  to  Odessa,  and  the  defendant  - 
to  sell,  and  ship  on  board  there,  on  the  arrival  of  the  vessel,  a  cargo  of 
linseed,  the  bills  of  lading  for  which  were  to  be  made  deliverable  to  the 
defendant's  order  (so  as  to  preserve  his  lien  for  the  price),  and  the 
bankrupt  was  to  pay  the  price  in  ready  money,  on  receiving  the  invoice 

1  WILLIAMS,  ERLB,  CRESSWELL,  WIOHTMAN,  MAULE,  JJ.,  WILDE,  C.  J.,  and,  in 
accordance  with  their  views,  Lords  BRODOHAM  and  CAMPBELL  delivered  opinions  in 
favor  of  the  defendant.  PLATT  and  ROLFE,  BB.,  delivered  opinions  in  favor  of  the 
plaintiff. 


452 


GIBSON   V.    CARRUTHERS. 


[CHAP.  v. 


and  bills  of  lading  in  London.  The  declaration  assigns  as  a  breach,  the 
non-shipment  of  the  cargo  at  Odessa,  where  the  vessel  arrived  after 
the  bankruptcy,  of  which  it  is  stated  the  defendant  had  notice.  —  The 
plea  avers  that  the  assignees  did  not,  within  a  reasonable  time  after 
the  bankruptc}1,  and  after  the  arrival  at  Odessa,  give  notice  to  the  de- 
fendant of  their  intention  to  adopt  the  contract ;  and  there  is  a  demurrer 
to  this  plea,  which  raises  two  questions,  —  first,  whether  the  matter  con- 
tained in  the  plea  is  an  answer  to  the  action  ;  and  secondl}-,  whether 
the  declaration  discloses  a  good  cause  of  action. 

I  am  of  opinion  that  the  assignees  are  entitled  to  recover. 

There  can  be  no  doubt  that  the  effect  of  the  assignment  under 
6  Geo.  IV.  c.  16,  §§  12,  63,  is  to  vest  in  the  assignees,  to  use  the 
language  of  Lord  Tenterden  in  Wright  v.  Fail-field,  2  B.  &  Ad.  732, 
every  beneficial  matter  belonging  to  the  bankrupt's  estate,  and,  amongst 
the  rest,  the  right  of  enforcing  unexecuted  contracts,  by  which  benefit 
may  accrue  to  that  estate,  and  such  as  may  be  performed  on  the  part 
of  the  bankrupt  bj"  the  assignees :  such,  in  short,  as  would  pass  as  part 
of  his  personal  estate  to  his  executors  if  he  had  died,  which  would  not 
include  that  description  of  contract  where  the  personal  skill  or  conduct 
of  the  bankrupt  would  form  a  material  part  of  the  consideration.  In 
order  to  enforce  these  contracts,  it  is  only  necessaiy  that  the  assignees 
should  perform  all  that  the  bankrupt  was  bound  to  perform,  as  prece- 
dent or  contemporary  conditions,  at  the  time  when  he  was  bound  to 
perform  them,  and  the  bankruptcy  has  no  other  effect  on  the  contracts 
than  to  put  the  assignees  in  the  place  of  the  bankrupt,  neither  rescind- 
ing the  obligations  on  either  part}-,  nor  imposing  new  ones,  nor  antici- 
pating the  period  of  performance  on  either  side. 

If  the  assignees  do  all  that  the  bankrupt  ought  to  have  done,  they 
may  recover  against  the  contractor  the  damages  which  the  bankrupt 
himself  could  have  recovered  if  he  had  performed  his  contract ;  if  they 
omit  to  do  so,  they  lose  the  benefit  of  the  contract,  and  the  other  con- 
tracting party  has  his  remedy  against  the  bankrupt,  to  which  the  cer- 
tificate is  no  bar.  Boorraan  v.  Nash,  9  B.  &  C.  145. 

To  apply  this  to  the  present  case,  the  bankrupt  having  already  per- 
formed the  first  part  of  his  contract,  by  sending  a  ship  to  Odessa,  the 
next  thing  was  that  the  ship  should  be  ready  to  receive  the  .cargo 
on  board.  This  was  also  done,  and  as  the  defendant  refused  to 
load  the  ship,  there  was  a  breach  of  contract,  for  which  the  assignees 
could  sue,  for  the  performance  of  it  would  have  been  beneficial  to  the 
bankrupt's  estate,  and  would  have  been  the  only  mode  by  which  the 
outlaj*  in  chartering  and  sending  the  vessel  could  be  repaid.  The  as- 
signees were  not  bound  to  pa\-,  or  to  be  ready  to  pa}*,  the  price  until 
the  arrival  of  the  cargo  in  London,  and  delivery  of  invoice  and  bill  of 
lading  —  a  period  which  had  not  }Tet  arrived.  This  part  of  the  case  ap- 
pears to  me  to  be  perfectly  clear,  and  consequently  the  plea,  which  is 
framed  on  the  supposition  that  the  law  requires  the  assignees  to  give 
express  notice,  in  a  reasonable  time  after  the  bankruptcy,  of  their  adop- 


SECT.  IV.]  GIBSON   V.   CARRUTHERS.  453 

tion  of  the  contract,  is  bad.  The  law  only  requires  them  to  perform 
the  bankrupt's  part  of  it  as  and  when  he  should  have  done  it  himself. 

But  it  is  said  that  the  declaration  itself  discloses  a  sufficient  reason 
for  the  non-performance  of  the  contract,  because  it  states  the  bank- 
ruptcy, and  notice  of  it,  before  the  time  for  loading  the  cargo ;  and  it 
is  said  that  by  analogy  to  the  doctrine  of  stoppage  in  transitu,  the  de- 
fendant might,  on  the  receipt  of  that  notice,  decline  to  proceed  to  fulfil 
the  engagement  on  his  part. 

But  the  doctrine  of  stoppage  in  transitu  applies  only  to  the  case  of 
goods  sold  and  delivered ;  for  the  delivery  to  a  carrier  or  middleman  is 
a  delivery  to  the  party,  and  in  cases  of  bankruptcy  and  insolvenc}7  the 
law,  founded  on  an  equitable  principle,  permits  the  unpaid  vendor,  at 
any  time  before  the  arrival  of  the  goods  at  their  place  of  destination,  or 
the  vendee's  actual  possession,  to  resume  possession  and  put  himself  in 
the  same  position  as  if  he  had  not  parted  with  it  (whether  it  enables 
him  also  to  rescind  the  contract  is  a  point  }'et  unsettled,  and  which  I 
need  not  now  discuss). 

But  this  privilege  in  case  of  bankruptcy  or  insolvency  (for  it  belongs 
to  both  alike),  has  never  yet  been  extended  further  than  to  allow  re- 
sumption of  possession  after  the  contract  was  complete  by  delivery, 
and  to  undo  as  it  were  the  deliver}' ;  there  is  no  trace  of  any  authority 
for  saying  that  bankruptcy  or  insolvency  excuses  the  party  contracting 
with  the  bankrupt  from  performing  any  other  unexecuted  part  of  his 
contract. 

To  allow  a  person  to  retire  from  his  agreement  before  it  is  executed 
and  the  goods  ready  to  be  delivered,  is  to  deprive  the  bankrupt,  and 
those  who  represent  him,  of  all  power  to  have  the  goods,  on  payment 
of  the  stipulated  price,  and  would  work  the  greatest  injustice  where 
the  bankrupt  had  already  incurred  expense. 

If  there  were  a  contract  to  build  a  vessel  for  the  bankrupt,  he  sup- 
plying a  part  of  the  timber,  and  paying  the  price  by  instalments,  the 
last  on  delivery,  and  the  bankruptcy  occur  after  the  timber  has  been 
supplied,  and  some  instalments  paid,  and  before  the  vessel  is  complete, 
it  could  not  be  contended  for  an  instant  that  the  builder  could  refuse 
to  complete  his  contract  on  the  ground  of  that  bankruptcj1,  and  render 
all  the  previous  expense  of  the  bankrupt  unavailing ;  and  yet  that  case 
is  in  principle  similar  to  the  present.  The  bankrupt  has  incurred  the 
expense  of  chartering  a  ship  ;  is  the  defendant  to  be  at  libert}'  to  refuse 
to  perform  what  he  has  engaged  to  do,  on  the  speculation  that  the 
bankrupt  or  his  assignees  will  not  pay?  The  amount  of  the  bankrupt's 
expense  is  immaterial,  and  it  might  happen,  in  the  case  of  articles  of 
great  bulk,  that  the  cost  of  the  vessel  out  and  home  constituted  a  very 
large  part  of  the  value  of  the  goods  here ;  is  the  bankrupt  to  incur  tho 
expense,  and  the  defendant  to  be  at  liberty  to  refuse  to  deliver  on 
board  and  throw  the  whole  of  it  on  the  estate? 

It  appears  to  me  that  these  questions  must  be  answered  in  the 
negative. 


tJk*^"* 


454  GIBSON   V.   CARRUTHERS.  [CHAP.  V. 

The  only  authority  cited  in  the  argument  for  the  position,  that,  in 
case  of  an  unexecuted  contract,  an  intervening  bankruptcy  excuses  the 
performance,  is  the  case  of  Marsh  v.  Wood,  9  B.  &  C.  659.  It  is  enough 
to  say  that  it  was  decided  on  the  ground  that  the  property  in  the 
subject-matter  of  the  dispute  was,  by  the  bankruptcy,  taken  out  of 
the  bankrupt,  and  the  submission  was  therefore  no  longer  mutual,  and 
not  on  the  principle  that  bankruptcy  dissolves  the  contract. 

For  the  above  reasons  I  am  of  opinion  that  the  plaintiff  is  entitled  to 
our  judgment  on  this  demurrer.1 

LORD  ABINGER,  C.  B.  .  .  .  Upon  this  contract  it  is  manifest  that  the 
defendant  was  to  part  with  the  possession  of  his  goods  of  great  value, 
upon  the  faith  that  the  buyer,  at  a  future  day,  when  the  bills  of  lading 
should  arrive  in  London,  would  pay  him  for  them.  If  he  had  actually 
shipped  the  goods  before  he  had  notice  of  the  bankruptcy,  and  the 
bankruptcy  had  occurred  afterwards,  I  think  he  might  have  stopped 
the  goods  in  their  progress  to  the  buyer,  had  it  been  in  his  powej 
so  ;  and  if  the  goods  had  actually  arrived  at  their  destination  he  might 
still  have  refused  to  hand  over  the  bills  of  lading  and  invoice  till  the 
price  was  paid.  The  question  then  is,  whether,  under  the  actual  cir- 
cumstances, he  was  compellable  by  law,  knowing  that  the  bankrupt 
could  not  pay  him,  to  expose  himself  to  the  risk  of  freight  and  insur- 
ance, and  sending  his  goods  perhaps  to  a  falling  market,  upon  the 
chance  only  of  its  suiting  the  interest  or  the  pleasure  of  the  assignees 
to  pay  him.  For  it  has  not  yet  been  contended  that  they  were  bound, 
or  could  have  been  compelled,  to  pay  him. 

I  am  of  opinion  that  it  follows  from  the  right  of  the  vendor  to  stop 
the  goods  in  transitu,  if  he  hears  of  the  bankruptcy  of  the  vendee  be- 
fore their  delivery,  that  he  has,  d,  fortiori,  a  right  to  refuse  to  part  with 
the  possession  of  them  at  all,  if  he  has  notice  of  the  bankruptcy  whilst 
they  remain  in  his  actual  possession.  I  think  that  the  mere  insolvency 
of  the  vendee  would  have  been  a  bar  to  any  action  brought  by  him 
under  these  circumstances ;  and  if  he  could  not,  by  reason  of  his  mere 
insolvency,  have  maintained  an  action  for  the  refusal  to  ship  the  goods, 
that  no  right  to  maintain  such  an  action  vested  in  his  assignees  by  the 
event  of  his  subsequent  bankruptcy.  .  .  . 

If  indeed  it  were  true  that  the  assignees  of  a  bankrupt  might  main- 
tain an  action  to  recover  damages  for  the  non-delivery  of  goods  sold  to 
the  bankrupt,  numerous  cases  must  have  occurred  in  which  it  would 
have  been  their  interest  to  do  so.  But  not  only  has  no  such  action 
been  brought,  but  I  am  not  aware  of  any  dictum  to  that  effect  previously 
to  that  of  Lord  Tenterden,  in  the  case  of  Boorman  v.  Nash,  where,  in 
support  of  an  action  clearly  maintainable  against  the  bankrupt  for  dam- 
ages which  could  not  be  proved  under  his  commission,  by  reason  of  his 
refusal  to  accept  oils  sold  to  him  before  his  bankruptcy,  to  be  delivered 
at  a  period  which  arrived  after  his  bankruptcy,  that  learned  judge  is 
made  to  say  that  the  contract  was  not  rescinded  by  the  bankruptcy 

1  ROLFE  and  GURNET,  BB.,  delivered  concurring  opinions. 


SECT.  IV.]  GIBSON   V.   CARRUTHERS.  455 

(which  in  one  sense  is  true),  and  that  the  assignees  might  have  enforced 
it  if  they  had  thought  fit ;  from  which  last  part  of  that  dictum  I  must 
beg  leave  entirely  to  dissent,  as  being  altogether  inconsistent  and  irrec- 
oncilable with  any  principle  on  which  the  right  of  stoppage  in  transitu 
can  be  founded.  Generall}7  speaking,  bankruptcy  is  no  discharge  of 
the  bankrupt  from  an  executory  contract  made  before  the  bankruptcy, 
and  which  he  is  free  to  perform  afterwards.  There  may  possibly  be 
many  cases  which  ingenuity  may  suggest,  where,  from  the  nature  of 
the  contract  and  the  circumstances  attending  it,  the  solvent  party  as 
well  as  the  bankrupt  may  be  liable  in  equity  and  at  common  law  to  the 
performance  of  it,  or  to  the  payment  of  damages.  Each  of  these  cases 
will  depend  on  its  own  circumstances,  which  no  doubt  will  develop  some 
rule  or  principle  of  law  or  equity  by  which  the  particular  case  is  to  be 
governed. 

But  there  is  a  certain  class  of  contracts  in  which  it  is  manifest  that 
bankruptcy  must  put  an  end  to  all  claim  of  the  bankrupt  or  his  assignees 
to  the  performance  of  them  by  the  solvent  party.  The  contract  of 
partnership  is  a  familiar  instance ;  and  in  every  case  where  the  motive 
or  consideration  of  the  solvent  party  was  founded,  wholly  or  in  part, 
upon  his  confidence  in  the  skill  or  personal  ability  of  the  bankrupt,  if 
the  bankrupt,  from  his  circumstances,  is  unable  to  perform  his  part, 
the  assignees,  as  it  appears  to  me,  are  not  entitled  to  substitute  either 
their  own  capacity  or  skill  or  credit  for  that  of  the  bankrupt.  Sup- 
pose, for  example,  that  a  man  of  wealth,  by  way  of  encouraging  bankers 
whom  he  wishes  to  patronize,  should  agree  with  them  for  a  certain  term 
of  years  to  keep  his  cash  with  them,  upon  the  faith  of  which  agreement 
they  take  a  shop,  purchase  strong  boxes,  and  incur  other  expenses 
necessary  to  carry  on  the  trade.  Upon  their  bankruptcy,  their  assignees 
would  surely  have  no  right  to  insist  upon  keeping  his  cash  for  the  re- 
mainder of  the  term,  or  upon  their  right  to  find  him  a  banker.  An  in- 
stance of  another  kind,  but  depending  on  the  same  principle,  occurred 
between  the  late  Sir  Walter  Scott  and  his  booksellers,  who  had  become 
bankrupts. 

He  had  engaged  to  write  a  novel,  which  they  were  to  have  the  benefit 
of  publishing,  in  consideration  of  which  they  were  to  pay  him  £4,000, 
for  which  they  had  given  him  their  acceptances  in  anticipation.  Before 
the  work  was  finished  they  became  bankrupt,  whereupon  Sir  Walter 
Scott  took  up  all  the  bills  he  had  negotiated.  Upon  the  conclusion  of 
his  work,  when  it  was  ready  for  the  press,  the  assignees  contended,  that 
by  virtue  of  the  contract  they  had  a  right  to  the  profit  of  publishing  it, 
which  they  were  ready  to  undertake.  Sir  Walter  Scott  suggested  sev- 
eral grounds  to  show  that  the  credit,  the  skill,  the  judgment,  integrity, 
and  personal  character  and  reputation  of  a  publisher  were  matters  of 
great  importance  to  an  author,  on  which  the  success  and  reputation  of 
his  works  might  greatly  depend,  and  therefore  insisted  that,  the  con- 
sideration for  his  contract  having  respect  to  the  personal  credit  and 
qualities  of  the  bookseller,  he  was  by  their  bankruptcy  discharged  from 


456  GIBSON   V.   CAERUTHERS.  [CHAP.  V. 

his  contract.  I  must  own  that  his  reasoning  appeared  satisfactory  to 
ine  ;  but  a  more  obvious  illustration  of  the  principle  on  which  it  rested 
would  have  been  afforded  by  reversing  the  case,  and  supposing  that 
Sir  Walter  Scott  had  been  the  bankrupt  and  his  booksellers  solvent, 
would  they  have  been  content  to  pay  their  £4,000,  and  take  the 
risk  of  publishing  a  novel  written  by  the  assignees  of  the  novelist? 
Without,  therefore,  presuming  to  suggest  any  rule  that  would  govern 
all  possible  contracts  upon  the  event  of  the  insolvency  of  either  party, 
I  shall  confine  myself  to  the  single  case  of  a  contract  for  the  sale  of 
goods,  where  the  bankruptcy  or  insolvency  of  the  buj'er  intervenes  be- 
fore the  period  for  the  payment  has  arrived,  and  before  the  goods  have 
come  to  the  actual  possession  of  the  buyer  or  his  assignees,  or  to  the 
ultimate  place  of  their  destination.  In  other  words,  I  confine  myself 
to  the  single  case  where  the  right  of  stoppage  in  transits,  after  the 
transit  has  commenced,  may  be  exercised ;  and  it  appears  to  me  very 
plain  that  wherever  that  right  may  be  exercised,  it  is  a  proof,  afortit 
that  the  vendor  is  discharged  by  the  insolvency  of  the  vendee  from  the 
obligation  of  delivering  the  goods  at  all,  and  consequently  from  the 
obligation  of  making  the  transitus  commence. 

If  it  be  necessary  to  look  for  any  principle  on  which  this  right  de- 
pends, it  may  be  found  in  the  implied  condition  in  every  sale  of  goods, 
that  the  buyer,  if  he  lives,  or  his  estate,  if  he  dies,  will  be  able  to  pay 
for  them.  To  him,  and  to  his  ability  alone,  the  vendor  trusts,  and  he 
is  not  botfnd  to  take  the  credit  of  any  other  man.  He  may,  if  he  think 
fit,  despatch  the  goods  to  the  assignees  upon  their  request,  and  take 
them  for  his  paymasters ;  but  if  he  does  so  he  makes  a  new  contract 
with  them.  In  the  case  where  the  vendor  is  not  to  part  with  his  per- 
sonal possession  of  the  goods  till  he  is  paid,  it  is  clear  that  neither  the 
bankrupt  nor  his  assignees  can  have  the  goods  without  payment.  Their 
credit  is  no  part  of  the  contract,  and  the  position  of  the  vendor  is  not 
changed  by  the  insolvency.  But  where  the  goods  are  to  be  paid  for  at 
a  future  day,  or  where  the  vendor  is  to  part  with  the  actual  possession 
of  them  by  sending  them  by  a  carrier,  though  he  is  to  receive  the  money 
upon  delivery  after  their  arrival,  in  either  of  these  cases  he  trusts  to 
the  credit  of  the  bankrupt :  the  assignees  are  not  bound  to  pa}'  for  the 
goods  when  they  arrive.  The  vendor  has  not  contracted  either  to  give 
them  credit  or  to  take  the  risk  of  their  responsibility  or  their  pleasure. 
The  only  consideration  for  his  agreement  to  despatch  the  goods  is  the 
credit  he  gives  to  the  personal  ability  of  the  vendee  to  pay  for  them 
when  they  arrive,  and  if  that  consideration  fails,  the  contract  is  void- 
able at  his  pleasure.  By  the  law  of  France  .  .  .  it  is  provided  that  the 
83rndics  of  the  insolvent  are  entitled  to  a  delivery  of  goods  stopped  in 
transitu,  if  they  will  pay  the  vendor  the  full  price  the  bankrupt  has 
agreed  for.  This  is  a  positive  rule,  and  it  must  be  understood  that 
they  are  to  make  actual  payment,  and  not  to  substitute  their  credit  or 
that  of  any  other  man  for  that  of  the  bankrupt,  for  that  would  be  a  new 
contract  The  rule  applies  to  a  case  of  actual  stoppage  in  transitut 


SECT.  IV.]  GIBSON   V.   CARRUTHERS.  457 

where,  to  a  certain  extent,  the  vendor  has  acted  upon  the  credit  of  the 
vendee,  and  not  to  the  case  of  a  notice  of  bankruptcy  before  the  goods 
are  despatched.  .  .  . 

I  consider  the  absence  of  all  example  of  the  assignees  of  a  bankrupt 
vendee  bringing  an  action  for  the  non-delivery  of  goods  a  very  cogent 
proof  of  the  opinion  which  has  prevailed  on  this  subject.  But  there  is 
a  case  of  an  action  brought  by  an  insolvent  vendee  against  the  vendor, 
the  decision  of  which  goes  the  full  length  of  establishing  the  position  I 
have  laid  down,  that  the  insolvency  of  the  vendee  discharges  the  vendor 
from  the  obligation  of  parting  with  the  goods  upon  credit.  It  is  the 
case  of  Reader  v.  Knatchbull,  tried  at  the  Sittings  at  Westminster  after 
Hilary  Term,  1786,  before  Mr.  Justice  Buller.  "  The  plaintiff  declared 
upon  an  agreement  by  the  defendant  to  deliver  him  a  quantity  of 
Manchester  cottons.  The  defence  was,  that  after  making  the  contract, 
the  plaintiff  had  compounded  with  his  creditors.  Mr.  Justice  Buller 
directed  the  jury  that  if  the}'  believed  the  plaintiff  was  really  in  such  a 
situation  as  to  be  unable  to  pay  for  the  goods,  that  was  a  good  defence* 
in  point  of  law  to  the  action  ;  and  the  jury  accordingly  found  a  verdict 
for  the  defendant."  A  note  of  this  case  will  be  found  in  the  report  of 
Tooke  v.  Hollingworth,  5  T.  R.  218. 

This  authority  ought  to  be  deemed  conclusive  upon  a  question  in 
which  common  sense  and  common  justice  point  to  the  same  conclusion. 
Now  to  apply  the  principle  to  the  present  case.  Is  it  a  case  in  which  the 
vendor,  after  the  commencement  of  the  transitus,  might  have  stopped  the 
goods  and  prevented  their  delivery  to  the  bankrupt?  That  it  is  so  is 
proved  by  the  case  of  Bohtlingk  v.  Ellis,  already  cited,  in  which,  though 
the  vendee,  by  the  contract,  was  to  charter  a  ship  and  send  it  for  the 
goods,  and  though  the  goods  were  accordingly  shipped  in  that  vessel,  it 
was  held  that  the  vendor  might  still  exercise  the  right  of  stopping  in  tran- 
situ  ;  that  case  is  indeed  exactly  similar  to  the  present,  in  all  points  but 
one,  which  makes  this  a  stronger  case  for  the  exercise  of  the  right,  and 
that  point  is,  that  by  the  contract,  here  the  vendor  was  to  retain  the  bills 
of  lading  in  his  own  hands  till  they  were  exchanged  for  the  money.  It 
is  the  case,  therefore,  of  a  contract  to  sell  goods  to  be  delivered  at  a 
future  time,  before  which  the  vendee  becomes  bankrupt.  If,  therefore, 
the  vendor  should  ship  the  goods  before  he  has  notice  of  the  insolvency, 
he  has  a  right  to  stop  their  deliver}'  to  the  insolvent,  who  cannot  pa}* 
him  for  them.  Is  he  bound,  then,  after  previous  notice  of  the  bank- 
ruptcy, to  send  the  goods  upon  the  chance  that  the  assignees  may 
take  them  and  pay  him?  Surely  not;  the  assignees  are  under  no  obli- 
gation to  pay  him  ;  they  may  refuse  to  take  the  goods  and  leave  tlu-rn 
on  his  hands.  He  is,  therefore,  according  to  the  opinion  of  the  other 
members  of  this  court,  reduced  to  this  dilemma,  that  he  is  bound  to 
send  the  goods  to  London,  there  to  take  the  chance  of  market,  which, 
if  favorable,  may  tempt  the  assignees  to  receive  them  and  pay  the  price  ; 
if  unfavorable,  must  bring  a  loss  upon  him,  even  of  the  whole,  should 
the  price  not  be  equal  to  the  freight.  Whereas  the  very  object  of  his 
contract  was,  to  sell  for  a  fixed  price,  and  have  nothing  to  hazard. 


458  GIBSON   V.   CARRUTHERS.  [CHAP.  V. 

Under  these  circumstances  it  appears  to  me  that  he  was.  discharged 
by  the  insolvency  of  the  vendee  from  the  obligation  to  send  forward  the 
goods  at  all ;  that  according  to  the  case  above  referred  to,  he  would 
have  had  a  good  defence  against  the  insolvent,  had  he,  being  insolvent, 
brought  an  action  for  the  refusal  to  ship  the  goods  before  his  bank- 
ruptcy ;  and  consequently  that  no  cause  of  action  for  not  shipping  the 
goods  vested  in  the  assignees. 

I  observe  the  declaration  is  so  framed  as  to  embrace  the  alternative 
of  a  right  of  action  in  the  assignees  upon  the  original  contract,  and  a 
right  of  action  derived  from  their  notice  that  they  would  perform  the 
contract  in  place  of  the  bankrupt.  But  if  no  right  of  action  existed  in 
them  to  compel  the  shipment  of  the  goods  the  declaration  is  bad  ;  and  I 
am  of  that  opinion. 

But  if  it  could  be  supposed,  which  I  think  it  cannot,  that  an}'  right 
of  action  could  arise  out  of  their  notice  that  they  were  ready  and  will- 
ing to  receive  and  pay  for  the  goods,  then,  as  such  notice  must  have 
been  given  in  reasonable  time,  the  plea  which  alleges  that  it  was  not 
given  in  reasonable  time  must  be  good,  so  that  in  either  case  the  judg- 
ment on  the  demurrer  ought  to  be  for  the  defendant. 

I  would  add  only  one  remark,  to  distinguish  the  case  of  an  executor 
from  that  of  an  assignee.  A  party  contracting  to  sell  goods  must  con- 
template the  existing  and  continuing  solvency  of  the  vendee  till  the 
goods  are  paid  for,  but  he  cannot  contemplate  the  continuance  of  his 
life,  so  as  to  make  that  an  implied  condition  of  the  delivery.  He  con- 
tracts, therefore,  in  point  of  law,  with  the  vendee  and  his  executors, 
but  not  with  the  vendee  and  his  assignees. 

Judgment  for  the  plaintiffs? 

1  Compare,  as  to  the  duty  of  a  solvent  contractor  to  tender  performance  to  a  co- 
contractor  who  is  insolvent,  or  his  assignee,  Ex  parte  Tondeur,  L.  R,  5  Eq.  160;  Ex 
parte  Agra  Bank,  L.  R.  9  Eq.  725 ;  N.  E.  Iron  Co.  v.  Gilbert  R.  R.  Co.,  91  N.  Y.  153 ; 
Pardy  v.  Kanady,  100  N.  Y.  121  ;  Vandegrift  v.  Cowles  Engineering  Co.,  161  N.  Y. 
435  ;  Diem  v.  Koblitz,  49  Ohio  St.  41. 

It  is  well  settled  that  credit  need  not  be  given,  though  the  contract  provides  for  it, 
if  the  debtor  is  insolvent  or  bankrupt.  See,  besides  cases  above  cited,  Bloxam  v. 
Sanders,  4  B.  &  C.  948  ;  Miles  v.  Gorton,  2  C.  &  M.  504 ;  Grice  v.  Richardson,  3  A.  C. 
319;  Ex  parte  Chalmers,  L.  R.  8  Ch.  289;  Bloomer  v.  Bernstein,  L.  R.  9  C.  P.  588; 
Morgan  v.  Bain,  L.  R.  10  C.  P.  15;  Re  Phoenix  Steel  Co.,  4  Ch.  D.  108;  Ex  parte 
Stapleton,  10  Ch.  D.  586 ;  Re  Wheeler,  2  Low.  252;  Rappleye  v.  Racine  Seeder  Co., 
79  la.  220,  228 ;  Brassel  v.  Troxel,  68  111.  App.  131 ;  Hobbs  ».  Columbia  Falls  Brick 
Co.,  157  Mass.  109  ;  Lennox  v.  Murphy,  171  Mass.  370,  373. 


V 


SECT.  IV.]  BRIGHAM   V.   HOME   LIFE   INS.   CO.  459 


BRIGHAM,  ASSIGNEE  v.  HOME  LIFE  INSURANCE  COMPANY. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  MARCH  15- 
JUNE  30,  1881. 

[Reported  in  131  Massachusetts,  319.] 

BILL  in  equity,  filed  March  20,  1880,  by  the  assignee  in  bankruptcy 
of  William  Scollan,  to  recover  possession  of  a  policy  of  life  insurance 
issued  by  the  defendant  compaivy  to  Scollan  on  July  9,  1878.     Hearing  ' 
before  COLT,  J.,  who  reported  the  case  for  the  consideration  of  the  full 
court.     The  facts  appear  in  the  opinion. 

A.  A.  Ranney,  for  the  defendant  corporation. 

T.  P.  Proctor,  for  the  plaintiff,  was  not  called  upon. 

MORTON,  J.  The  polic}'  issued  by  the  defendant  company  insures 
the  life  of  William  Scollan  "  in  the  amount  of  thirty-six  hundred 
dollars,  for  the  term  of  six  years  with  endowment  without 'participation  J^jV 
in  profits."  By  it  the  insurer  "  promises  and  agrees  to  and  with 
William  Scollan  to  pay  the  sum  assured  at  its  office  in  this  city  to  him 
on  the  thirteenth  da}-  of  October,  1884,  or  to  his  children,"  [naming 
them,]  "  share  and  share  alike,  or  to  the  survivors  or  survivor  of  them 
within  sixt}'  days  after  due  notice  and  proof  of  loss  and  interest,  satis- 
factor}-  to  the  company,  in  accordance  with  the  terms  of  this  contract." 
The  first  clause  is  an  absolute  promise  to  pay  the  sum  assured  to  foj0* 

i-1  u^ - 

frrrf 

exclusive  right  to  collect  the  amount.  The  promise  in  the  last  clause, 
to  pay  to  his  children,  was  clearly  intended  to  be  an  alternative  prom- 
ise, and  to  apply  only  in  case  he  should  die  before  the  day  when 
payment  was  to  be  made  to  him.  The  promise  is  to  pay  to  the  children 
"  within  sixty  days  after  due  notice  and  proof  of  loss,"  that  is,  after 
proof  of  the  death  of  the  insured.  Construed  in  its  connection  with 
the  absolute  promise  to  pay  Scollan  at  the  termination  of  the  policy,  it 
admits  of  no  sensible  interpretation  except  that  it  is  an  alternative 
promise  to  pay  to  the  children  in  case  Scollan  shall  die  before  October 
13,  1884. 

This  being  the  true  construction  of  the  contract,  it  is  clear  that 
ScoTIan  had  a  valuable  interest  in  this  contract  of  insurance,  which 


Scollan  on  October  13,  1884,  if  he  complies  with  the  terms  of  the  con-    /     yfi' 
tract.     If  he  lives  to  that  time,   he,  or  his  assignee,   will  have  the 


i<>  his  assignee  in  bankruptcy.  The  assignment  in  bankruptcy 
conveyed  to  the  assignee  "all  the  estate,  real  and  personal,  of  the 
bankrupt,  with  all  his  deeds,  book  and  papers  relating  thereto,"  with 
certain  exceptions  not  material  to  this  case.  U.  S.  Rev.  Sts.  §§  5044- 
5046  ;  Leonard  v.  Nye,  125  Mass.  455  ;  Belcher  v.  Burnett,  126  Mass. 
230.  All  the  interest  which  Scollan  had  in  this  policy  of  insurance, 
therefore,  passed  to  and  vested  in  his  assignee,  subject  to  the  same 
contingencies  in  his  hands  as  in  the  hands  of  the  bankrupt.  After  the 


460  IN   RE    MUERIN.  [CHAP.  V. 

assignment,  Scollan  had  no  control  or  power  of  disposition  over  it,  and 
his  attempted  surrender  and  discharge  of  it  to  the  defendant  was  in- 
operative and  void.  It  still  remains  the  property  of  his  assignee,  the 
plaintiff,  and  he  is  entitled  to  the  possession  of  it.  Scollan_jiad_the 
exclusive  right  to  the  possession  of  the  policy  us  the  evidence  of  his 
contract,  both  against  the  company  and  against  his  children,  as  long  as 
he  lived,  and  this  right  passed  to  the  plaintiff.  We  are  not  called  upon 
to  consider  whether  the  plaintiff  has  the  right  to  assign  this  policy  with- 
out the  assent  of  the  compan}- ;  he  has  at  least  the  right  to  its  posses- 
sion for  the  purpose  of  enabling  him  to  collect  the  amount  insured 
when  it  becomes  paj-able,  if  Scollan  shall  then  be  living. 

The  remaining  question  is  whether  this  court  has  jurisdiction  in 
equity  to  compel  the  delivery  of  the  policy  to  the  plaintiff:  The  bill 
states,  and  the  evidence  shows,  that  the  policy  is  secreted  and  withheld 
by  the  company,  so  that  it  cannot  be  replevied.  The  plaintiff  has  a 
right  to  the  securities  belonging  to  the  estate  of  the  bankrupt.  If  his 
only  right  is  to  collect  the  sum  insured  when  it  becomes  payable,  he  is 
entitled  to  the  policy  as  evidence,  and  the  want  of  it  may  cause  embar- 
rassment and  possible  danger  of  failure  in  a  suit  at  law.  He  has  no 
plain,  adequate  and  complete  remedy  at  law  which  will  fully  protect 
and  guard  his  rights,  and  is  therefore  entitled  to  maintain  this  bill. 
Sears  v.  Carrier,  4  Allen,  339  ;  Pierce  v.  Lamson,  5  Allen,  60. 

Decree  affirmed.1 


IN  RE   MURRIN. 

CIRCUIT  COURT  FOR  THE  EASTERN  DISTRICT  OP  MISSOURI,   1873. 

[Reported  in  2  Dillon,  120.] 

DILLOX,  Circuit  Judge.  The  wife  of  the  petitioner  being  possessed 
of  a  separate  estate,  secured  to  her  by  an  ante-nuptial  marriage  settle- 
ment, applied  in  the  spring  of  1869  for  two  policies  of  insurance  of 
$5,000  each,  upon  her  life,  payable  upon  her  death  to  her  husband. 
The)'  were  issued  accordingly,  and  she  paid  the  premiums  for  one  }"ear, 
one-half  in  cash,  and  one-half  by  note.  Before  the  year  expired  her 
husband  was  adjudicated  a  bankrupt.  Out  of  her  own  estate  she  paid 
the  premiums  for  the  two  following  years,  1870  and  1871,  and  before 

1  Re  Steele,  98  Fed.  Rep.  78;  Re  Diack,  100  Fed.  Rep.  770;  Re  Boardman,  103 
Fed.  Rep.  783;  Re  Slingluff,  106  Fed.  Rep.  154;  Re  Welling,  113  Fed.  189  (C.  C.  A.); 
Re  Coleman,  136  Fed.  818  (C.  C.  A.) ;  Re  White,  174  Fed.  333  (C.  C.  A.).  Bassett 
v.  Parsons,  140  Mass  169  ;  Waldron  v.  Becker,  68  N.  Y.  Supp.  402,  ace. 

In  Burlingham  v.  Grouse,  228  U.  S.  459,  the  court  said :  "  We  think  it  was  the  pur- 
pose of  Congress  to  pass  to  the  trustee  that  sum  which  was  available  to  the  bankrupt 
at  the  time  of  bankruptcy  as  a  cash  asset ;  otherwise  to  leave  to  the  insured  the  benefit 
of  his  life  insurance."  The  court  also  held  that  an  assignee  of  the  policy  was  entitled 
to  exercise  the  bankrupt's  right  of  redemption. 


SECT.  IV.]  IN  BE   MURRIN.  461 

the  next  premium  fell  due  she  died.  The  question  is,  whether  the  as- 
signee as  against  the  bankrupt,  is  entitled,  for  the  benefit'of  the  estate, 
to  the  proceeds  of  the  policies.  The  assignee  does  not  claim  that  his 
right  is  strengthened  by  reason  of  having  obtained,  in  the  manner 
stated,  the  actual  possession  of  the  proceeds,  and  the  only  contest  is 
as  to  the  respective  legal  or  equitable  right  of  the  assignee  and  bank- 
rupt thereto. 

Counsel  on  both  sides,  in  their  well  considered  briefs,  have  argued 
many  points  which,  though  pertaining  to  the  general  subject  of  life 
policies  for  the  benefit  of  others,  are,  nevertheless,  not  necessarily  in- 
volved in  the  decision  of  the  case. 

The  counsel  for  the  assignee  claims  that  at  the  date  of  the  bank- 
ruptcj*  of  the  husband,  November  30,  1869,  the  husband  had  a  right  of 
property  in  the  policy  (which  it  is  contended  is  a  chose  in  action^)  of 
such  a  nature  that  it  vested  in  the  assignee  by  virtue  of  the  adjudica- 
tion in  bankruptc}'.  (Bankrupt  act,  sec.  14.)  Under  this  section, 
property  and  rights  which  are  acquired  by  the  bankrupt  after  the  com- 
mencements of  the  proceedings  in  bankruptcy  do  not  vest  in  the  as- 
signee ;  and  to  make  good  his  claim  the  assignee  must  show  that  the 
right  to  the  benefit  of  the  policy  was  one  which  not  only  existed  in  the 
husband  at  the  time  he  was  proceeded  against  in  bankruptcy,  but  is  one 
of  such  a  nature  as  to  vest  in  the  assignee  as  of  that  time,  by  virtue  of 
the  provisions  of  the  bankrupt  act.  This  act  should  receive  such  a 
construction  as  accords  with  its  well  known  purpose,  which  is,  that  if 
an  insolvent  debtor  will  surrender  all  his  property  (not  exempt)  for 
distribution  among  his  creditors,  he  may,  on  the  terms  provided  in  the 
act,  have  his  discharge.  If  the  wife's  death  had  happened  before  the 
bankruptcy,  there  being  no  statute  protecting  the  husband's  rights  un- 
der the  policy,  the  right  to  collect  and  hold  the  mone}7  would,  it  may 
be  admitted,  pass  to  the  assignee.  But  her  death  did  not  happen  until 
over  two  years  afterwards,  during  which  time  the  wife  continued  to  pay 
the  premiums.  It  is  admitted  that  she  could  not  have  been  compelled 
to  pay  them,  either  by  the  husband,  or  by  the  assignee.  Her  payment 
of  them  proceeded  purely  from  her  bounty.  It  is  certain,  to  a  practical 
intent,  that  if  she  had  not  paid  the  subsequent  premiums,  the  first  pay- 
ment, made  before  the  bankruptcy,  would  have  been  of  no  benefit, 
either  to  the  assignee  or  to  the  husband,  for  she  did  not  die  during 
the  year.  It  is  also  certain,  to  a  practical  intent,  that,  had  the  last 
premium  not  been  paid,  there  would  have  been  no  proceeds  here  about 
which  to  litigate.  Her  intention,  her  object,  in  making  these  pay- 
ments, in  virtue  of  which  the  policy  was  kept  in  esse,  must  have  been 
to  make  provision  for  her  husband  ;  and  what  equity,  let  me  ask,  have 
creditors,  or  the  assignee  representing  them,  to  thwart  the  purpose 
which  she  had  in  view,  and  for  which  she  paid  her  money  —  money  to 
which  they  had  no  claim?  The  assignee,  if  it  be  conceded  that  he 
could  have  done  so  for  the  benefit  of  the  estate,  which  I  do  not  admit 
nor  decide,  took  no  steps  to  pay  the  premiums,  but  asks  the  benefit  of 


462  IN   RE    MURRIN.  [CHAP.  V. 

those  paid  by  the  wife.  It  is  inconceivable  that  she  made,  or  intended 
to  make,  the  payments  for  the  benefit  of  the  assignee,  and  she  doubt- 
less died  in  the  confident  belief  that  she  had  made  provision  for  her 
husband. 

Without  discussing  the  questions  which  have  been  argued  at  the  bar 
as  to  the  nature  and  extent,  before  the  death  occurs,  of  the  interest  of 
a  person  designated  by  the  bounty  of  another  as  the  one  to  whom  a 
policy  is  ultimately  to  be  paid,  I  am  quite  confident  that  the  husband, 
at  the  time  of  his  bankruptcy,  had  no  such  interest  in  these  policies  as 
to  give  the  assignee  the  right  to  retain  their  proceeds  against  manifest 
intention  and  purpose  of  the  wife. 

Could  the  assignee,  as  against  the  wish  of  the  wife,  have  said,  "  I 
demand  the  policy,  and  intend  to  keep  up  the  premiums  for  the  benefit 
of  the  estate  "  ?  If  it  were  necessary  to  answer  this  question,  it  would 
seem  that  he  had  no  such  right,  and  that  she  could  properly  say,  "This 
is  a  matter  of  my  own,  a  provision  originating  in  my  bounty,  one  upon 
which  my  husband's  creditors  have  no  claim,  and  with  which  they  have 
no  right  to  interfere."  But  the  assignee  took  no  such  steps  ;  on  the 
contrary,  he  allowed,  or  did  not  prevent  the  wife  from  making  the  pay- 
ments  which  kept  the  policy  alive ;  and  I  rest  my  judgment  against 
him  on  the  broad  ground,  that,  under  the  circumstances  of  the  case,  the 
creditors,  for  whose  benefit  the  money  is  sought,  have  not  the  shadow 
of  a  shade  of  equity  to  it,  nor  to  defeat  the  provident  and  just  provision 
which  the  wife  intended  to  secure  for  her  husband,  not  for  them.  The 
policy  was  kept  up  by  her  for  the  benefit  of  her  husband  after  her 
death,  not  for  the  benefit  of  his  creditors  before  his  bankruptcy.  The 
district  judge,  in  deciding  the  case,  seized  the  considerations  which  con- 
trol it,  when  he  remarked  :  "  Looking  at  the  nature  of  the  contract  for 
the  insurance  as  being  a  provision  by  one  married  part}-  for  the  benefit 
of  another,  and  kept  in  force  by  the  wife  out  of  her  separate  estate 
without  any  step  being  taken  by  the  assignee,  her  equities  should  be 
carefully  regarded.  The  policy  was  for  the  benefit  of  the  husband,  and 
was  kept  alive  by  the  wife  after  the  bankruptcy,  and  it  would  be  in- 
equitable that  a  sum  becoming  payable  after  the  bankruptcy  under 
such  a  contract,  should  by  relation  back  to  the  time  of  commencement 
of  proceedings  in  bankruptcy,  be  held  to  belong  to  the  assignee.  The 
design  of  such  charitable  acts  for  the  benefit  of  a  third  part}'  was  not 
intended  to  be  defeated  by  the  bankrupt  law,  in  a  case  like  the  present, 
where  such  a  result  would  be  against  all  equity."  Affirmed.1 

1  Re  McDonell,  101  Fed.  Rep.  249,  ace.  But  see  McElroy  v.  John  Hancock  L.  I. 
Co.,  88  Md.  137|;  Troy  v.  Sargent,  132  Mass.  408. 

In  Carr  v.  Myers,  211  Pa.  349,  the  court  said:  "The  mere  naked  allegation  of  the 
wife's  beneficial  interest  in  them,  without  defining  or  attempting  to  define  what  that 
interest  was,  is  not  an  allegation  that  she  had  '  property  in  them,  which,  prior  to  the 
filing  of  the  petition  in  bankruptcy,  she  could  by  any  means  have  transferred,  or  which 
might  have  been  levied  upon  and  sold  under  judicial  process  against  her.'  " 


SECT.  IV.]  IN   RE   STEELE.  463 


IN  RE  STEELE. 

DISTRICT  COURT  FOR  THE  SOUTHERN  DISTRICT  OF  IOWA, 
DECEMBER  12,  1899. 

[Reported  in  98  Federal  Reporter,  78.] 

SHIRAS,  District  Judge.  From  the  record  certified  to  the  court  in 
this  case  it  appears  that  the  firm  of  Steele  &  -Co.,  and  the  partners 
therein,  Anna  M.  Steele,  Daniel  Steele,  William  M.  Steele,  and  Daniel 
H.  Steele,  have  been  duly  adjudged  bankrupts  in  this  district,  and, 
in  the  proceedings  had  before  the  referee,  the  question  arose  as  to  the 
rights  of  the  creditors  represented  by  the  trustee  in  certain  policies  of 
life  insurance  held  by  the  bankrupts,  and  from  the  ruling  made  by  the 
referee  an  appeal  has  been  taken  to  this  court.  It  appears  from  the 
evidence  that  Anna  M.  Steele  is  the  wife  of  Daniel  Steele ;  that  Daniel, 
William  M.,  and  Daniel  H.  Steele  are  and  were,  when  the  proceedings 
in  bankruptc}'  were  instituted,  head  of  families,  and  were  then,  and 
are  now,  citizens  and  residents  of  the  State  of  Iowa.  Of  the  policies  in 
question,  three  are  on  the  life  of  Daniel  Steele,  two  on  the  life  of 
William  M.  Steele,  and  one  on  the  life  of  Daniel  H.  Steele. 

Under  the  broad  provisions  of  section  1805  of  the  Code  of  Iowa, 
none  of  these  policies  could  be  now  subjected  to  process  in  favor  of 
creditors,  or  be  rendered  available  to  the  creditors  by  proceedings 
other  than  those  instituted  under  the  bankrupt  act;  and,  as  the  policies 
are  exempt  from  liabilit}"  to  creditors  by  this  provision  of  the  State 
statute,  it  is  earnestly  contended  that  they  must  be  held  exempt  in  the 
bankruptcy  proceedings  by  reason  of  the  declaration  contained  in  sec- 
tion 6  of  the  bankrupt  act,  to  the  effect  that  the  act  shall  not  affect  the 
allowance  to  a  bankrupt  of  the  exemptions  which  are  prescribed  by  the 
State  laws  in  force  at  the  time  of  the  filing  of  the  petition.  In  the  case 
of  In  re  Lange  (D.  C.),  91  Fed.  361, 1  held  that  the  general  provisions 
of  section  6  of  the  act  were  limited  and  controlled  by  the  exception 
contained  in  section  70,  and  that,  construing  the  two  sections  together, 
it  must  be  held  that,  where  a  bankrupt  held  a  policy  payable  to  him- 
self, his  heirs  or  legal  representatives,  the  surrender  value  thereof  would 
be  part  of  the  assets  of  his  estate  in  bankruptcy. 

While  I  freely  admit  that  the  question  is  not  free  from  doubt,  I  shall 
adhere  to  the  view  expressed  in  the  Lange  Case  of  the  meaning  of  the 
statute  ;  and  therefore  the  remaining  question  is,  what  is  the  result  of 
the  application  of  this  rule  to  the  policies  involved  in  this  case  ?  1 

The  policy  issued  by  the  Mutual  Benefit  Life  Insurance  Company 
upon  the  life  of  Daniel  Steele,  numbered  109,795,  for  the  sum  of  $2,000, 
is  paj-able  to  Daniel  Steele,  his  executors,  administrators,  or  assigns. 

1  Reversed  on  this  point  by  the  Circuit  Court  of  Appeals.  Steele  v.  Buel,  104  Fed. 
Rep.  968;  and  exemption  allowed  in  Holden  v.  Stratton,  198  U.  S.  202. 


464  IN    RE    STEELE.  [CHAP.  V. 

The  surrender  value  of  this  policy  is  pa}"able  to  the  bankrupt,  no  other 
person  having  an}'  interest  in  the  policj"  or  its  proceeds,  and  the  policy 
will  therefore  become  part  of  the  assets  of  the  bankrupt's  estate,  unless 
he  avails  himself  of  the  right  to  pay  or  secure  the  surrender  value  to 
the  trustee. 

There  are  two  policies  issued  by  the  Mutual  Life  Insurance  Com- 
pany of  New  York,  —  one  numbered  31,523,  for  the  sum  of  $2,000, 
and  one  numbered  47,739,  for  the  sum  of  $3,000.  In  form,  these  pol- 
icies are  contracts  between  Anna  M.  Steele  and  the  insurance  company, 
the  life  insured  being  that  of  Daniel  Steele,  the  husband  of  Anna  M. 
By  the  terms  of  the  contract,  it  is  Anna  M.  Steele  who  is  bound  to 
pay  the  annual  premiums,  and  she  is  the  person  to  whom  the  proceeds 
of  the  policy  are  made  paj'able.  Under  these  circumstances,  Mrs. 
Steele  would  be  entitled  to  the  surrender  value  of  the  policies,  if  the 
same  were  now  terminated,  and  she  alone  could  contract  with  the  com- 
pan}'  to  terminate  the  same  b}T  receiving  the  surrender  value  thereof. 
These  policies  are  therefore  the  property  of  Mrs.  Steele.  They  have 
a  surrender  value,  payable  to  her,  and,  as  she  is  one  of  the  bankrupts, 
these  policies  are  part  of  the  assets  of  her  estate  to  which  the  trustee 
is  entitled,  unless  the  surrender  value  is  paid  or  secured  to  him  by  the 
bankrupt. 

The  policy  on  the  life  of  William  M.  Steele  issued  by  the  New  Eng- 
land Mutual  Life  Insurance  Compan}",  numbered  105,575,  for  the  sum 
of  $5,000,  is  in  the  nature  of  an  endowment  policy  ;  it  being  therein 
provided  that,  at  the  end  of  forty-eight  years,  the  principal  sum  shall 
be  paid  to  William  M.  Steele,  if  then  living,  but  in  case  of  his  death 
before  that  date,  the  amount  should  be  paid  to  his  wife.  The  surrender 
value  of  a  policy  of  this  form  is  clearl}'  payable  to  William  M.  Steele, 
the  bankrupt,  and  therefore  the  policy  will  pass  to  the  trustee,  unless 
the  surrender  value  is  settled  with  him  as  provided  for  in  the  act. 

The  remaining  policy  on  the  life  of  William  M.  Steele  is  in  the  Penn 
Mutual  Life  Company,  numbered  102,082,  for  $5,000,  and  is  payable 
to  his  wife,  Gracie.  The  wife  is  the  beneficiary  of  this  policy,  and,  as 
she  is  not  one  of  the  bankrupts,  her  interest  therein  cannot  be  destroj-ed 
b\-  treating  the  policy  as  part  of  the  estate  of  her  bankrupt  husband. 
This  policy  must  be  deemed  to  be  her  property,  in  which  the  trustee 
has  no  interest.1 

The  remaining  polic}'  is  one  issued  by  the  Northwestern  Mutual  Life 
Insurance  Company  in  the  sura  of  $5,000,  numbered  322,790,  on  the 
life  of  Daniel  H.  Steele  ;  the  company  contracting  to  pay  the  sum 
named  in  the  policy  to  the  executors,  administrators,  or  assigns  of 
Daniel  H.  Steele.  Under  date  of  May  21,  1895,  Daniel  H.  Steele,  by 

1  Ex  varte  Merrett,  7  Morrell,  65  ;  Re  Bear,  11  B.  R.  46 ;  Belt  v.  Brooklyn  L.  I.  Co., 
12  Mo.  App.  100,  ace.  See  also  Re  Dews,  96  Fed.  Rep.  181  ;  Pace  v.  Pace,  19  Fla.  4.38 ; 
Day  v.  New  England  L.  I.  Co.,  Ill  Pa.  507.  The  laws  of  many  States  expressly  ex- 
empt such  policies.  See  Baron  v.  Brummer,  100  N.  Y.  372  ;  Stokes  v.  Amerman,  121 
N.  Y.  337  ;  Bennett's  Case,  6  Phila.  472. 


J 

SECT.  IV.]  DUSHANE    V.   BEALL.  465 

a  writing  duly  executed  and  attached  to  the  policy,  assigned  the  same 
to  Helen  B.  Stafford,  to  whom  he  was  then  engaged  to  be  rriarried,  and 
who  is  now  his  wife.  The  effect  of  this  assignment  was  to  make 
the  polic}'  one  payable  to  the  wife  of  the  insured.  She  became  the 
beneficiary  thereof,  and  is  entitled  to  the  proceeds  of  the  policy. 
This  assignment  was  made  in  1895,  long  before  the  adoption  of  the 
bankrupt  act,  and  there  is  nothing  to  impugn  the  good  faith  of  the 
transaction.  I  therefore  hold  that  this  policy  is  not  part  of  the  assets 
of  the  bankrupt  Daniel  H.  Steele,  and  the  trustee  has  no  interest  in  or 
right  thereto.  Unless,  therefore,  the  bankrupts  promptly  exercise 
their  right  to  pay  or  secure  to  the  trustee  the  surrender  value  of  the 
policies  in  the  Mutual  Benefit,  the  Mutual  Life,  and  the  New  England 
Companies,  the  same  will  become  assets  of  the  estate  in  the  hands  of 
the  trustee.  The  referee,  upon  receiving  this  opinion,  will  at  once 
send  notice  b}"  mail  to  the  bankrupts  of  the  ruling  of  the  court,  which 
affirms  the  rulings  of  the  referee  from  which  the  appeal  was  taken. 


DUSHANE  v.  BEALL.  o^c,  J?  r.  . 

WOt.     (jtlLAxU*    &f    TV*   CM/ 

UNITED  STATES  SUPREME  COURT,  MARCH  2-16,  1896.  T«ti>-*-ftjui>«>t 

[Reported  in  161  United  States,  513.] 

THIS  was  a  garnishee  proceeding  in  the  Court  of  Common  Pleas 
Fayette  County,  Pennsylvania. 

The  record  of  that  court  shows  the  issue  in  favor  of  Alpheus  Beall, 
on  a  judgment  recovered  by  him  against  Abraham  O.  Tinstman,  of  an 
attachment  execution,  dated  June  9,  1888,  and  service  thereof  accepted 
by  the  Pittsburgh  and  Connellsville  Railroad  Company,  as  garnishee, 
June,  15,  1888. 

August  10,  1888,  McCullough,  assignee  in  bankruptcy,  appeared  in 
the  garnishment  proceeding  and  participated  in  the  choice  of  arbitrators, 
who  made  an  award  September  25,  1888,  in  favor  of  Beall,  from  which 
award  an  appeal  was  taken.  December  13,  1889,  the  case  was  con- 
tinued "  on  account  of  death  of  assignee  of  A.  O.  Tinstman  ;  said  case 
not  to  be  again  placed  on  trial  list  until  after  appointment  and  appear- 
ance of  another  assignee  in  bankruptcy."  April  23,  1890,  "  Edward 
Campbell,  Esq.,  appears  for  J.  M.  Dushane,  assignee  in  bankruptc}'  of 
A.  O.  Tinstman."  September  11,  1890,  "Joshua  M.  Dushane,  as- 
signee of  A.  O.  Tinstman,  appears  in  court  and  asks  leave  to  be  added 
to  the  record  as  defendant."  Thereafter  the  case  was  submitted  to  the 
court  for  determination  on  a  case  stated,  which  embodied  the  following 
facts : — 

On  the  5th  of  April,  1876,  Abraham  O.  Tinstman  was  adjudicated  a 
bankrupt  in  involuntary  proceedings  in  bankruptcy,  and  during  the 


466  DUSHANE   V.   BEALL.  [CHAP.  \. 

same  month  Welty  McCullough  was  appointed  assignee,  and  took  upon 
himself  the  duties  thereof.  The  deed  of  the  register  in  bankruptcy  to 
the  assignee  conveyed  the  property  which  Tinstman  possessed,  was  in- 
terested in,  or  entitled  to,  on  the  fifth  day  of  April,  but  the  schedule  of 
assets  filed  by  the  assignee  did  not  embrace  the  bankrupt's  interest  in 
a  certain  telegraph  line  hereinafter  mentioned.  Tinstman  was  duly 
discharged  as  a  bankrupt,  Ja.nua.ry  3,  1877. 

In  1882,  James  L.  Shaw  instituted  an  action  against  the  Pittsburgh 
and  Connellsville  Railroad  Company  in  the  Court  of  Common  Pleas  for 
Fa}-ette  Count}-,  Pennsylvania,  to  recover  damages  for  a  breach  of  con- 
tract relative  to  the  maintenance  and  working  of  a  line  of  telegraph 
between  Uniontown  and  Connellsville,  and  on  October  2,  1885,  Tints- 
man  was  made  one  of  the  "  use  plaintiffs"  therein. 

After  his  discharge,  Tinstman  engaged  in  business,  and  became  in- 
debted to  Alpheus  Beall  in  the  sum  of  $730.54,  for  which  a  judgment 
was  rendered  against  him  November  24,  1886,  in  said  Court  of  Com- 
mon Pleas. 

Shaw  recovered  judgment  against  the  railroad  company  for  a  con- 
siderable amount,  covering  damages  from  January  1,  1874,  to  Septem- 
ber 1,  1887.  Of  these  damages,  the  sum  of  $947.73  was  Tinstman's 
share  on  account  of  an  interest  in  the  line  of  telegraph,  which  became 
his  property  "  by  subscription  and  payment  therefor  in  the  year  1865." 
McCullough  died  August  31,  1889,  Joshua  M.  Dushane  was  appointed 
assignee  in  his  place  December  14,  1889,  and  intervened  in  this  case,  as 
such,  September,  11,  1890. 

The  Court  of  Common  Pleas  ruled  that  the  assignee  had  lost  any 
right  to  the  fund  by  reason  of  delaying  claim  thereto  for  an  unreason- 
able time  ;  and  also  that  the  limitation  of  two  }'ears  prescribed  by  sec- 
tion 5057  of  the  Revised  Statutes  of  the  United  States  applied  ;  and 
entered  judgment  in  favor  of  Beall  and  against  the  railroad  company 
as  garnishee  for  $947.43,  "the  debt  due  by  said  garnishee  to  said 
Tinstman."  The  case  was  taken  to  the  Supreme  Court  of  Penn- 
sylvania, which  affirmed  the  judgment  on  the  ground  that  the  delay  of 
the  assignee  was  fatal  to  his  claim.  149  Penn.  St.  439.  A  writ  of 
error  from  this  court  was  then  sued  out. 

Mr.  Edward  Campbell,  for  plaintiff  in  error. 

Mr.  Leoni  Melick,  for  defendant  in  error. 

Mr.  Chief  Justice  FULLER,  after  stating  the  case,  delivered  the 
opinion  of  the  court. 

We  concur  with  the  Supreme  Court  of  Pennsylvania  that  the  limita- 
tion of  §  5057  of  the  Revised  Statutes  did  not  appty.  That  limitation 
is  applicable  onhr  to  suits  growing  out  of  disputes  in  respect  of  property 
and  of  rights  of  property  of  the  bankrupt  which  came  to  the  hands  of 
the  assignee,  to  which  adverse  claims  existed  while  in  the  hands  of  the 
bankrupt  and  before  assignment.  In  re  Conant,  5  Blatch.  54 ; 
Clark  v.  Clark,  17  How.  315,  321 ;  Phelps  v.  McDonald,  99  U.  S.  298, 
306  ;  French  v.  Merrill,  132  Mass.  525. 


SECT.  IV.]  DUSHANE    V.   BEALL.  467 

It  is  well  settled  that  assignees  in  bankruptcy  are  not  bound  to  ac- 
cept property'  which,  in  their  judgment,  is  of  an  onerous  'and  unprofit- 
able nature,  and  would  burden  instead  of  benefiting  the  estate,  and  can 
elect  whether  they  will  accept  or  not  after  due  consideration  and  within 
time±  while?  if  their  judgment  is  unwisely  exercised,  the 


bankruptcy  court  is  open  to  compel  a  different  course.  Sparhawk  v. 
Yerkes,  142  ll.  S.  1,  13  ;  Glenny  v.  Langdon,  98  U.  S720  ;  American 
File  Co.  v.  Garrett,  110  U.  S.  288  ;  Smith  v.  Gordon,  6  Law  Rep.  313  ; 
Amory  v.  Lawrence,  3  Cliff.  523;  Ex  parte  Houghton,  1  Low.  554; 
Nash  v.  Simpson,  78  Me.  142  ;  Streeter  v.  Summer,  31  N.  H.  542.1 
The  same  principle  is  applicable  also  to  receivers  and  official  liqui- 
dators. Quinc}1,  &c.  Railroad,  v.  Humphreys,  145  U.  S.  82;  St. 
Joseph,  &c.  Railroad  v.  Humphreys,  145  U.  S.  105;  Sunflower  Oil  Co. 
v.  Wilson,  142  U.  S.  313  ;  United  States  Trust  Co.  v.  Wabash,  &c. 
Railway,  150  U.  S.  287;  In  re  Oak  Pitts  Colliery  Co.,  21  Ch.  Div.  322, 
330.  And  see  Bourdillon  v.  Dalton,  1  Esp.  233;  s.  c.  Peake's  N.  P. 
312  ;  Turner  v.  Richardson,  7  East,  336  ;  Domat,  vol.  II.  part  2,  Book 
I,  Title  1,  sec.  v. 

If  with  knowledge  of  the  facts,  or  being  so  situated  as  to  be  charge- 
able with  such  knowledge,  an  assignee,  by  definite  declaration  or 
distinct  action,  or  forbearance  to  act,  indicates,  in  view  of  the  particular 
circumstances,  his  choice  not  to  take  certain  property,  or  if,  in  the  lan- 
guage of  Ware,  J.,  in  Smith  v.  Gordon,  he,  with  such  knowledge, 
"stands  by  without  asserting  his  claim  fora  length  of  time,  and  allows 
third  persons  in  the  prosecution  of  their  legal  rights  to  acquire  an  in- 
terest in  the  property,"  then  he  may  be  held  to  have  waived  the  asser- 
tion of  his  claim  thereto. 

In  Sparhawk  v.  Yerkes  we  held  that  as  the  conduct  of  the  assignees 
was  such  as  to  show  that  the}-  did  not  intend  to  take  possession  of  the 
assets  in  controvers}'  ;  as  they  avoided  assuming  an\-  liability  in  respect 
thereof;  and  as  they  allowed  the  bankrupt  after  his  discharge  b}T  the 
expenditure  of  labor  and  money  to  save  the  assets  and  render  them 
valuable,  they  could  not  be  permitted  to  assert  title  against  him.  That 
was  a  suit  directly  against  the  bankrupt,  and  this  is  in  effect  the  same, 
for  Beall  does  not  appear  to  occupy  any  better  position  than  Tinstman 
himself.  The  judgment  of  the  Supreme  Court  of  Pennsylvania  pro- 
ceeded upon  the  ground  that  the  assignee  delayed  too  long  in  the 
assertion  of  his  claim;  that  the  litigation  against  the  railroad  company 
was  protracted,  uncertain,  and  expensive;  and  that  as  the  assignee  did 
not  appear  to  have  intervened  in  the  matter  until,  as  is  stated,  Decem- 
ber 11,  1890,  although  the  litigation  began  in  the  summer  of  1882,  he 
must  be  held  to  have  elected  to  abandon  the  claim,  and  could  not  come 
in  at  so  late  a  day  and  share  in  the  fruits  of  litigation  carried  on  by 
others  ;  and  on  that  view  of  the  facts  this  conclusion  would  seem  to  be 
correct  if  the  record  showed  on  the  part  of  Tinstman's  assignee  knowl- 
edge of  the  facts  or  wilful  blindness  in  relation  to  them. 

1  Re  Cogley,  107  Fed.  Rep.  73,  ace. 


468  DUSHANE   V.   BEALL.  [CHAP.  V. 

The  Supreme  Court  manifestly  referred  to  the  intervention,  in  this 
proceeding,  of  Dushane,  as  assignee,  which  was,  according  to  the  case 
stated,  September  11,  1890;  but  McCullough  had  intervened  as  as- 
signee August  10,  1888,  and  he  having  died  August  31,  1889,  the  cause 
was  continued  for  the  appointment  and  appearance  of  another  assignee. 

It  is  said  by  counsel  for  the  assignee  that  the  original  litigation  was 
commenced  April  29,  1878,  by  a  bill  in  equity,  filed  for  the  benefit  of 
all  the  owners  of  the  telegraph  line,  which  it  was  decided  January  9, 
1882,  would  not  lie  ;  that  thereupon  the  action  at  law,  which  resulted 
in  judgment,  was  brought  July  10,  1882,  in  the  name  of  Shaw  alone, 
the  contract  being  under  seal,  but  for  the  benefit  of  his  assigns  as  well, 
who  were  very  numerous;  that  afterwards  some,  but  not  all,  of  the 
"use  plaintiffs"  were  added  to  the  record;  and  that  Tinstman's  as- 
signee just  as  much  participated  in  the  litigation,  from  April,  1878, 
to  its  end  in  1888,  as  any  of  the  others,  whether  named  as  plaintiffs  or 
not.  The  difficulty  with  this  is  that  very  little,  if  any,  of !  the  matter 
stated  can  be  deduced  from  the  record,  which  fails  to  disclose  that  the 
assignee  was  represented  in  the  litigation  against  the  railroad  company, 
or  asserted  his  claim  to  his  share  of  the  fruits  thereof,  whether  as  a 
party  of  record  under  Shaw  or  otherwise  prior  to  his  intervention  in 
this  action,  August  10,  1888. 

The  case  stated  does  show  that  Tinstman  was  made  one  of  the  "  use 
plaintiffs  "  in  Shaw's  action,  October  2,  1885,  but  there  is  no  explana- 
tion of  how  that  entry  came  to  be  made,  and  nothing  to  indicate  notice 
thereof  to  the  assignee,  or  to  charge  him  with  notice  assuming  that  he 
was  ignorant  of  the  claim. 

On  the  other  hand,  the  bankruptcy  proceeding  was  involuntary,  and 
it  appears  that  the  schedule  of  assets  (the  term  schedule  being  used  in 
the  case  stated  as  the  equivalent  of  the  inventor}")  was  made  b}'  the 
assignee,  the  law  providing  that  the  order  of  adjudication  should  re- 
quire the  bankrupt  to  deliver  a  schedule  of  creditors  and  an  inventor}7 
and  valuation  of  his  estate,  and  if  the  bankrupt  were  absent  or  could 
not  be  found,  such  schedule  and  inventory  should  "  be  prepared  by 
the  messenger  and  the  assignee  from  the  best  information  they  can 
obtain."  Rev.  Stat.  §§5030,  5031.  And  this  inventory,  thus  prepared^ 
by  the  assignee,  the  record  affirmatively  shows,  did  not  embrace  the 
bankrupt's  interest  in  the  telegraph  line,  as  we  must  presume  it  would, 
if  the  assignee  had  had,  or  been  able  to  obtain,  information  in  respect 
thereof.  Nor  can  we  find  elsewhere  in  the  record  any  evidence  that 
the  assignee  knew  or  was  informed  of  Tinstman's  interest  prior  to 
August  10,  1888.  Counsel  for  the  assignee  argues  that  the  fact  is 
that  Tinstman's  interest  was  the  ownership  of  certain  shares  of  stock 
in  the  telegraph  company  which  were  included  in  the  inventory  and 
delivered  to  the  assignee,  but  the  exact  contrary  appears  from  the  case 
stated.  Nor  does  the  fact  appear,  which  he  likewise  insists  upon,  that 
the  assignee  not  only  did  not  abandon,  but  actively  asserted,  his  claim. 

The  question  whether  the  assignee  in  bankruptcy  was  entitled  to 


SECT.  IV.  J 


LANCET  V.   FOSS. 


469 


this  claim  was  clearly  a  Federal  question.  Williams  v.  Heard,  140 
U.  S.  529.  And  if  all  the  facts  stated  in  the  record  before  us  do  not,  as 
matter  of  law,  warrant  the  conclusion  at  which  the  highest  court  of  the 
State  arrived  upon  this  question,  it  is  the  duty  of  this  court  so  to  de- 
clare, and  to  render  judgment  accordingl}'. 

We  must  take  the  record  as  we  find  it,  and  are  constrained  to  the 
conclusion  that  the  assignee  should  not  have  been  held  to  have  exer- 
cised the  right  of  choice  beween  prosecuting  the  claim  and  abandoning 
it,  in  the  absence  of  any  evidence  whatever  to  justify  the  conclusion 
that  he  had  knowledge,  or  sufficient  means  of  knowledge,  of  its  exist- 
ence prior  to  August  10,  1888;  and  that  therefore  there  was  error  in 
the  judgment. 

Judgment  reversed,  and  the  cause  remanded,  that  the  judgment 
of  the  Court  of  Common  Pleas  may  be  reversed,  and  farther 
roceedings  had  not  inconsistent  with  this  opinion. 


LANCET  v.  FOSS. 

SUPREME  JUDICIAL  COURT  OF  MAINE,  SEPTEMBER  13,  1895. 
[Reported  in  88  Maine,  -215.] 

AGREED  statement. 

The  parties  agreed  upon  the  following  facts  :  — 

"The  writ  is  dated  March  14,  1878,  returnable  to  the  September 
Term  of  this  court  in  Somerset  County,  1878. 

"  Suit  is  brought  upon  numerous  notes  of  Going  Hathorn,  the  de- 
fendants'  testator,  and  upon  an  account  annexed,  and  also  upon  a 
special  contract  set  out  in  the  writ. 

"  Cop}-  of  writ  may  be  furnished  by  either  party. 

"  Subsequently,  in  1878,  the  plaintiff  was  declared  a  bankrupt,  upon 
his  own  petition  in  the  District  Court  of  the  United  States  for  the  Dis- 
trict of  Maine ;  a  schedule  of  his  assets  and  liabilities  was  filed  in  said 
court,  the  assets  not  including  the  claims  in  this  writ ;  and  an  assignee 
was  duly  chosen  and  appointed  on  November  7,  1878,  and  on  said 
November  7,  1878,  by  decree  and  assignment  of  the  proper  Register  in 
Bankruptcy  under  the  U.  S.  Bankrupt  Act  of  1867,  all  the  estate  and 
property  of  said  Lanccy  was  duly  assigned  to  said  assignee. 

"  The  assignee  never  appeared  in  this  case. 

"  On  June  2,  1879,  said  Lancey  was  duly  discharged  from  all  his 
debts  and  liabilities  and  received  a  certificate  of  such  discharge  in  usual 
form,  from  said  District  Court  of  the  United  States,  paying  about 
twenty-five  cents  on  the  dollar. 

"If  upon  the  foregoing  facts  this  action  can  be  maintained  by  the 
plaintiff,  it  is  to  stand  for  trial ;  otherwise  a  nonsuit  is  to  be  entered." 


470  LANCET  V.  FOSS.  [CHAP.  V. 

&  S.  HacJcett,  for  plaintiff. 

D.  D.  Stewart,  for  defendant. 

Sitting:  PETERS,  C.  J.,  WALTON,  EMERY,  HASKELL,  WHITEHOUSE, 
WISWELL,  J.  J. 

EMERY,  J.  The  statement  of  the  case  shows  that  the  plaintiff  is  en- 
titled to  a  hearing  in  this  court  upon  the  merits  of  his  claim  against  the 
defendants,  unless  he  is  prevented  by  some  provision  of  the  U.  S. 
Bankruptcy  Act  of  1867,  to  which  he  had  become  subject  by  the  bank- 
ruptcy proceedings.  The  defendants  contend  that  he  is  thus  prevented 
by  several  provisions  of  that  act. 

I.  Section  5046,  U.  S.  Rev.  Stat.,  Title  Bankruptc}',  provides  that 
all  of  the  property  of  the  bankrupt,  including  all  choses  in  action,  all 
debts  due  him,  all  rights  and  causes  of  action  (with  certain  exceptions 
not  material  here),  "shall  in  virtue  of  the  adjudication  in  bankruptcy 
and  the  appointment  of  his  assignee,  be  at  once  vested  in  the  assignee." 
Section  5047  provides  that  the  assignee  may  be  admitted  to  prosecute 
in  his  own  name,  or  that  of  the  bankrupt,  any  suit  pending  at  the  time 
of  the  adjudication.  This  suit  and  the  subject-matter  of  it  are  clearly 
within  these  sections. 

Upon  these  sections  and  the  bankruptcy  proceedings  the  defendants 
base  a  vigorous  argument,  that  the  plaintiff  was  completely  shorn  of  all 
title  and  interest  in  this  action  and  its  subject-matter ;  that  the  entire 
title  and  interest  ipso  facto  passed  to  the  assignee,  leaving  nothing  in 
the  bankrupt  plaintiff ;  that  the  latter  became  civiliter  mortuus,  and  lost 
the  power  of  maintaining  actions  upon  then  existing  claims  as  com- 
pletely  as  one  physically  deceased.  There  are  various  expressions  and 
dicta  of  judges  which  seem  to  state  the  operation  of  the  statute  as 
broadly  as  do  the  defendants,  but  we  are  not  referred  to  any  express 
decision  going  so  far  upon  the  language  of  this  particular  act. 

Undoubtedly,  by  the  operation  of  the  Jbankruptcy  proceedings  under 
this  act,  the  assignee  is  vested  with  the  full  right  to  take  all  the  estate 
of  the  bankrupt,  whether  scheduled  or  not,  and  is  vested  with  sufficient 
power  and  title  to  fully  administer  it  in  his  own  name,  or  that  of  the 
Samtfuptj  as  iie~may  elect.  But  all  such  property  of  a  bankrupt  is  not 
cast  upon  the  assignee  nolens  volens,  like  the  personal  property  of  a 
deceased  intestate  upon  the  administrator.  In  the  latter  case  the  title 
cannot  remain  with  the  deceased,  but  must  fall  on  his  successor.  The 
assignee  of  a  living  bankrupt,  however,  may  decline  to  take  or  interfere 
with  such  property  as  he  deems  onerous  or  worthless.  The  property  so 
rejected  by  the  assignee  does  not  thereb}7  become  derelict,  to  vest  in  the 
first  appropriator.  The  rights  and  obligations  which  the  assignee  de- 
clines to  enforce,  or  notice,  do  not  thereby  vanish  into  nothingness. 

Such  items  of  estate,  corporeal  or  incorporeal,  as  the  assignee  declines 
to  appropriate  or  utilize,  remain  the  property  of  the  bankrupt,  subject 
always  to  the  superior  right  and  title  of  the  assignee.  Notwithstanding 
the  adjudication  and  assignment  under  the  bankrupt  act,  there  is  left 
in  the  bankrupt  a  right  which  makes  a  title  good  against  all  the  world 


SECT.  IV.]  LANCEY   V.   FOSS.  471 

except  his  assignee  and  creditors.  These  may  appropriate  the  entire 
title  and  interest,  and  so  divest  the  bankrupt  completely  ;/but  what  they 
decline  to  appropriate  remains  with  the  bankrupt.  The  title  does  not 
fall  to  the  ground  between  the  two.  If  the  assignee  or  creditors  will 
not  take  it,  no  one  else  can  appropriate  it.  The  bankrupt  can  defend 
or  enforce  it  against  all  others. 

The  above  statement  of  the  law  is  supported  directly  or  incidentally 
by  many  judicial  decisions.  Evans  v.  Brown,  1  Esp.  170;  Chippendale 
v.  Tomlinson,  7  East,  57;  Temple  v.  London,  &c.  Railway  Co.,  2  Jur. 
296  ;  Re  Stafford,  18  W.  R.  959  ;  Herbert  v.  Sayer,  5  Q.  B.  965  ;  Fyson 
v.  Chambers,  9  M.  &  W.  460-466;  Smith  v.  Gordon,  6  Law  Rep.  313 ; 
Amory  v.  Lawrence,  3  Cliff.  523;  Taylor  v.  Irwin,  20  Fed.  Rep.  615  ; 
American  File  Co.  v.  Garrett,  110  U.  S.  288;  Reynolds  v.  Bank,  112 
U.  S.  405  ;  Laughlin  v.  Dock  Co.,  65  Fed.  Rep.  447  ;  Eyster  v.  Gaff,  91 
U.  S.  521  ;  United  States  v.  Peck,  102  U.  S.  64  ;  Thatcher  v.  Rockwell, 
105  U.  S.  467  ;  Sparhawk  v.  Yerkes,  142  U.  S.  1 ;  Sessions  v.  Romadka, 
145  U.  S.  29  ;  King  v.  Remington,  36  Minn.  15  ;  Sawtellev.  Rollins,  23 
Me.,  196;  Foster  v.  Wylie,  60  Me.,  109;  Nash  v.  Simpson,  78  Me., 
142. 

In  this  case  at  bar,  the  action  with  its  various  counts  upon  promis- 
sorxjiotes,  mercnanaise_sold.  etc.,  was  pending  in  the  Supreme  Judicial 
Court  for  Somerset  County  at  the  time  of  the  adjudication  and  assign- 
ment_inbankruptcy.  The  claims^  here  in  'suit  were  not  scheduled  by 
the  bankrupt,  but  their  existence/ and  the  existence  of  this  action  to 
enforce  them,  were  matters  of  public  record  upon  the  docket  and  files 
of  a  court  of  general  jurisdiction.  The  assignee  and  creditors  may  be 
presumed  to  have  known  of  them.  The  assignee,  however,  never  ap- 
peared in  the  case,  and  does  not  now  appear  after  a  lapse  of  fourteen 
years.  He  never  appropriated  or  took  over  these  claims.  It  is  an  easy 
and  natural  inference  that  he  elected  not  to  take  them,  but  to  leave 
them  with  the  bankrupt.  United  States  v.  Peck;  Sparhawk  v.  Yerkes; 
Sessions  v.  Romadka,  supra. 

The  defendants  cannot  be  heard  to  complain  of  this  conduct  of  the 
assignee.  As  to  them  it  is  res  inter  alias.  The  judgment  in  this  action 
will  protect  the  defendants  against  the  assignee  as  effectually  as  if  he 
appeared  in  the  case.  Whatever  he  may  hereafter  do  to  appropriate 
the  proceeds  of  the  suit,  if  any,  will  not  affect  the  defendants.  Eyster 
v.  Gaff;  Thatcher  v.  Rockwell;  Foster  ?•., Wylie,  supra.  If,  however, 
the  defendants  desire,  they  can  have  an  order  of  notice  of  this  action 
served  upon  the  assignee  which  will  conclude  him  of  record. 

II.  Section  5057,  U.  S.  Rev.  Statute,  Title  Bankruptcy,  provides 
that  "no  suit  either  at  law  or  equity  shall  be  maintainable  in  any 
court  between  an  assignee  in  bankruptcy  and  a  person  claiming  an  ad- 
verse interest,  touching  any  property  or  rights  of  property  transferable 
to  or  vested  in  such  assignee,  unless  brought  within  two  years  from  the 
time  when  the  cause  of  action  accrued  for  or  against  such  assignee." 

The  defendants  contend  that  this  section  bars  the  further  prosecution 


472  LANCET   V.   FOSS.  [CHAP.  \T. 

of  this  action.  Their  argument  is  that  the  assignee  could  not  after  the 
two  years  begin  a  suit  in  his  own  or  the  bankrupt's  name,  nor  could  he 
come  into  or  prosecute  a  suit  already  begun  by  the  bankrupt.  Their 
further  argument  is,  that  every  person  claiming,  or  who  must  claim 
under  the  assignee,  is  equally  barred  from  beginning  or  prosecuting 
suits  after  the  two  j'ears,  and  that,  as  whatever  title  this  plaintiff  has 
necessarily  came  from  the  assignee,  he  is  barred  as  the  assignee  is 
barred.  Many  cases  are  cited  in  support  of  these  ai'gurnents.  In  every 
case  cited,  however,  the  title  was  held  to  have  once  passed  to  the  as- 
signee. It  followed  that  the  plaintiff  either  had  no  title  or  was  barred 
b}-  the  two  years'  limitation  upon  the  assignee.  Thus  in  Parks  v.  Tir- 
rell,  3  Allen,  15,  cited  so  confidently  by  the  defendants,  the  court  held 
that  the  title  had  passed  to  the  assignee,  and  that  the  bankrupt  plaintiff 
could  only  show  title  from  the  assignee,  and  hence  was  barred  equally 
with  the  assignee. 

In  this  case  at  bar,  as  already  stated,  the  assignee  did  not  take  over 
the  title.  He  elected  not  to  take  it  and  left  it  in  the  plaintiff.  He 
neither  took  nor  passed  the  title.  The  plaintiff  retained  the  title  sub- 
ject to  the  assignee's  paramount  right,  but  good  against  others  until  that 
paramount  right  was  asserted.  Therefore  the  cases  cited  do  not  apply. 
The  two  years'  limitation  in  the  Bankruptcy  Act  does  not  apply.  It 
bars  only  the  assignee  and  those  claiming  under  him.  The  plaintiff  is 
not  in  either  category.  In  Amory  v.  Lawrence,  3  Cliff.  523,  cited  supra, 
the  suit  was  by  a  bankrupt  on  a  claim  existing  before  the  bankruptcy ; 
but  the  suit  was  begun  long  after  the  two  3'ears'  limitation  had  expired. 
The  defendants  invoked  the  statute,  but  it  was  held  not  to  apply,  —  see 
also  Ludeling  v.  Chaffe,  143  U.  S.  301. 

III.  The  defendants  further  contend  that  the  act  of  the  plaintiff  in 
omitting  these  claims  from  his  schedule  was  evidently  intentional  and  in 
fraud  of  the  Bankruptcy  Act,  and  that  this  fraud  vitiates  and  extin- 
guishes his  right  to  recover  them.  But  in  the  statement  of  the  case 
there  is  no  allegation  of  fraud.  The  statement  of  the  omission  to  in- 
clude the  claims  in  the  schedules  is  not  a  statement  of  a  fraud.  There 
may  have  been  innocent  reasons  for  it.  The  court  cannot  assume  that 
it  was  fraudulent.  Again,  the  fraud,  if  any,  was  against  the  assignee, 
the  creditors  and  the  Bankruptcy  Act,  and  not  against  these  de- 
fendants. 

We  have  not  been  shown  anything  in  the  statement  of  the  case,  or 
in  the  Bankruptcy  Act,  which  in  our  opinion  inhibits  the  plaintiff  from 
proceeding  with  this  suit. 

Action  to  stand  for  trial.1 

1  "  That  doctrine  can  have  no  application  when  the  trustee  is  ignorant  of  the  ex- 
istence of  the  property,  and  has  had  no  opportunity  to  make  an  election."  First  Nat. 
Bank  v.  Lasater,  196  U.  S.  115. 


/ 

SECT.  I.]  EE   BURKA.  473 


CHAPTER  VI. 
PROVABLE   CLAIMS. 


SECTION   I. 
IN  GENEKAL. 

RE  BURKA. 

DISTRICT  COURT  FOR  THE  EASTERN  DISTRICT  OF  MISSOURI, 
OCTOBER  24,  1900. 

[Reported  in  104  Federal  Reporter,  326.] 

ADAMS,  District  Judge.  This  case  comes  before  the  court  on  a  peti- 
tion for  review  of  the  action  of  the  referee  in  allowing  a  claim  con- 
tracted by  a  bankrupt  after  the  filing  of  the  petition  for  adjudication 
against  him,  and  prior  to  the  actual  adjudication.  The  claim  allowed 
by  the  referee  was  For  l^g^l  api-vu.pa  rendered  by  Alfred  Bettman,  an 
attorney  at  law,  to  the  bankrupt,  in  matters  unrelated  to  the  bank- 
ruptcy proceedings.  Tin;  question  is  whether  such  a  claim,  not  in  ex- 
istence at  the  time  the  petition  for  adjudication  was  filed,  is  a  provable 
demandj^jvithin  the  meaning  of  the  bankruptcy  act.  Section  63  enacts 
that  debts  of  the  bankrupt  may  be  proved  and  allowed  against  his 
estate,  which  are  : 

[The  court  here  quoted  section  63.] 

It  is  observed  that  all  these  classes  of  provable  debts,  except  the 
fourth,  relate,  by  express  terms  of  the  statute,  to  such  as  were  in  ex- 
istence at  the  time  of  the  filing  of  the  petition.  The  fact  that  the 
fourth  subdivision  contains  no  words  of  limitation  is  considered  by 
claimant's  counsel  a  warrant  for  his  contention  that  his  claim,  which  is 
founded  on  an  open  account,  is  provable,  notwithstanding  the  fact  that 
it  was  not  in  existence  when  the  petition  was  filed.  It  is  not  apparent 
why  this  subdivision  is  inserted  without  words  of  limitation  as  to  the 
time  the  claim  should  have  accrued.  Especially  is  this  so  when  there 
seems  to  have  been  a  studied  effort  to  insert  such  words  in  relation  to 
all  the  other  provable  claims.  But  I  cannot  construe  this  omission 
into  a  general  provision  for  allowance  of  demands  against  the  estate  of 
a  bankrupt,  irrespective  of  the  time  when  they  accrued.  If  such  con- 
struction be  given  to  the  statute,  there  would  be  no  limitation  even  to 
such  claims  as  existed  at  the  date  of  the  adjudication.  The  general 


474  BE  BURKA.  [CHAP.  vi. 

language  would  cover  any  claims  that  might  accrue  during  the  pend- 
ency of  the  proceedings,  even  up  to  the  final  discharge.  In  the  absence 
of  express  provision  to  the  contrary,  I  think  that  debts  provable  under  • 
the  act  must  be  such  as  existed  at  the  date  of  the  filing  of  the  petition. 
That  date  is  one  to  which  many  general  provisions  are  referable.  For 
instance,  it  is  enacted  in  chapter  1,  section  1,  subdivision  10,  that  the 
words  "  date  of  bankruptcy,"  "  time  of  bankruptcy,"  "  commencement 
of  proceedings,"  or  "  bankruptcy,"  when  used  in  the  act  with  reference 
to  time,  tk  shall  mean  the  date  when  the  petition  is  filed."  Moreover, 
the  conclusion  reached  is  in  clear  analogy  with  the  general  rule  of  pro- 
cedure in  courts  charged  with  the  administration  of  trust  estates.  Ac- 
cording to  my  observation  and  experience,  the  rights  of  creditors  of 
insolvent  estates  administered  in  equity  generall}'  relate  to  the  time  of 
the  institution  of  the  proceedings  which  ultimately  result  in  the  seques- 
tration of  the  property  which  is  to  be  administered. 

It  is  argued  by  claimant's  counsel  that  because  the  trustee  is  vested 
with  the  title  not  only  to  property  which  the  bankrupt  had  at  the  time 
of  the  filing  of  the  petition  against  him,  but  also  to  such  property  as  he 
ma}'  have  acquired  after  that,  and  prior  to  the  date  of  adjudication,  and 
because  all  such  property  goes  into  the  fund  for  creditors,  therefore  all 
creditors  having  claims  which  originated  at  any  time  prior  to  the  actual 
adjudication  should  participate  in  the  fund  ;  in  other  words,  that,  as 
the  property  which  the  bankrupt  acquires  after  the  filing  of  the  petition 
enhances  the  fund  for  the  benefit  of  creditors,  all  creditors  whose  rights 
accrue  at  any  time  before  actual  adjudication  should  participate  in  it. 
This  is  a  plausible  argument,  and  I  presume  it  would  be  true  that,  if 
the  property  acquired  by  the  bankrupt  after  the  filing  of  the  petition 
and  before  the  adjudication  did  vest  in  the  trustee,  creditors  whose 
rights  accrued  between  those  dates  should  share  in  the  property  of  the 
bankrupt,  like  other  creditors  ;  but  the  argument,  in  my  opinion,  is 
based  on  false  premises.  Section  70  of  the  bankruptcy  act,  which  is 
relied  on  by  claimant's  counsel  in  support  of  the  argument,  contains 
the  following  provisions. 

"  The  trustee  of  the  estate  of  a  bankrupt  upon  his  appointment  and 
qualification  .  .  .  shall  be  vested  by  operation  of  law  with  the  title  of 
the  bankrupt,  as  of  the  date  he  was  adjudged  a  bankrupt,  ...  to  all 
.  .  .  (5)  property  which  prior  to  the  filing  of  the  petition,  he  could,  by 
any  means,  have  transferred.  .  .  ." 

After  a  careful  consideration  of  the  provisions  of  this  section,  I  am 
persuaded  that  there  are  two  separate  subjects  treated  of:  First,  the 
time  at  which  the  title  to  something  vests  in  the  trustee  ;  second,  the 
"  something"  or  property  the  title  of  which  is  to  vest  in  the  trustee. 
Inasmuch  as  the  trustee,  by  the  provisions  of  the  act,  cannot  be  chosen 
or  qualified  until  some  time  after  the  date  of  the  filing  of  the  petition, 
and  in  fact  until  some  time  after  the  date  of  adjudication,  it  is  ap- 
propriate and  fit  that  some  time  should  be  fixed,  to  which  his  title  to 
whatever  he  gets  should  relate  ;  and  such,  in  my  opinion,  is  the  subject- 


SECT.  I.]  BE   BTJRKA.  475 

matter  of  the  first  part  of  the  section  in  question.  Properly  interpreted, 
the  trustee  is  by  operation  of  law  vested  with  the  title  as  of  the  date 
the  bankrupt  was  adjudged  to  be  a  bankrupt.  The  further  provisions 
of  the  section,  already  quoted,  undertake  to  point  out  the  property  of 
which  by  operation  of  law  he  is  to  become  the  owner,  namely,  all  prop- 
erty which  prior  to  the  filing  of  the  petition  the  bankrupt  could  have 
transferred.  In  other  words,  the  property  which  the  trustee  acquires 
must  have  been  property  or  rights  which  so  existed  prior  to  the  filing 
of  the  petition  that  the  bankrupt  might  have  transferred  them.  This 
clearly  means  the  property  or  rights  of  property  which  existed  at  that 
time.  Such  being  the  true  interpretation  of  section  70,  it  affords  no 
ground  for  the  argument  made  by  the  claimant's  counsel.  Inasmuch 
as  no  property  which  the  bankrupt  may  have  acquired  after  the  filing 
of  the  petition  and  before  the  date  of  adjudication  is  taken  by  the 
trustee,  there  is  no  ground  for  the  argument  that  the  claimant,  holding 
a  claim  accrued  since  the  filing  of  the  petition,  and  before  adjudication, 
should  participate  in  the  assets.  His  claim  is  neither  provable,  nor  is 
the  bankrupt  discharged  by  the  final  judgment  of  the  court  from  the 
obligation  to  pa}'  such  a  claim. 

The  Supreme  Court  of  the  United  States,  by  section  30  of  the  act,  is 
authorized  and  empowered  to  prescribe  all  necessary  rules,  forms,  and 
orders  as  to  procedure,  and  for  carrying  the  bankruptcy  act  into  force 
and  effect.  In  pursuance  of  the  power  conferred  upon  it,  the  supreme 
court  adopted  form  No.  59  (32  C.  C.  A.  Ixxxii.,  89  Fed.  Iviii.),  which, 
after  preliminary  recitations,  reads  as  follows  : 

"  It  is  therefore  ordered  by  this  court  that  said [namely,  the 

bankrupt]  be  discharged  from  all  debts  and  claims  which  are  made 

provable  by  said  acts  against  his  estate,  and  which  existed  on  the 

day  of A.  D.  189-,  on  which  day  the  petition  for  adjudication 

was  filed  against  him." 

This  form  prescribed  by  the  Supreme  Court  indicates  the  view  which 
that  court  takes  of  the  provisions  of  the  act  in  relation  to  the  discharge 
of  a  bankrupt  from  his  debts,  and  according  to  it  the  bankrupt  is  dis- 
charged only  from  such  debts  as  existed  on  the  day  the  petition  for  ad- 
judication was  filed  against  him.  It  follows  that,  inatamch  Mf  the 
bankrurjtjs  not  -discharged  from  the  debts  which  are  created  after  the 
filing  of  the  petition  against  him,  such  debts  cannot  be  provable  against 
his  estate —  In  my  opinion,  the  referee  reached  an  erroneous  conclu- 
sion in  this  case,  and  the  order  will  be  to  disallow  or  expunge  the  claim 
in  question.1 

1  Zavelo  v.  Reeves,  227  U.  S.  625,  ace. 


476  BARNETT  V.  KING.  [CHAP.  VL 


BARNETT   w.    KING. 
COURT  OF  APPEAL.     NOVEMBER  3,   1890. 

{Reported  in  [1891]   1    Ch.  4.] 

APPEAL  from  STIRLING,  J. 

This  was  an  action  against  the  executors  of  the  will  of  Sir  Richard 
Duckworth  King,  in  which  the  plaintiff  claimed  £3,000  under  a  cove- 
nant contained  in  a  deed  dated  the  6th  of  June,  1885,  and  £97  Is.  \\d. 
interest  thereon  from  the  2d  of  November,  1887,  the  day  of  the  testa- 
tor's death. 

By  the  deed  in  question,  which  was  made  between  the  testator  of 
the  one  part  and  the  plaintiff  of  the  other  part,  after  a  recital  that  the 
testator  had  for  some  years  past  paid  to  the  plaintiff  (who  was  his 
brother-in-law)  an  annuity  of  £78,  and  had  agreed  with  the  plaintiff,  as 
a  further  provision,  to  secure  to  him  the  sum  of  £3,000,  to  be  payable 
upon  the  death  of  the  testator  in  manner  thereinafter  appearing,  it  was 
witnessed  that,  in  pursuance  of  the  agreement,  and  in  consideration  of 
the  natural  love  and  affection,  of  the  testator  for  the  plaintiff,  he,  the 
said  testator,  did  thereby  covenant  with  the  plaintiff,  his  executors, 
administrators,  and  assigns,  that  the  executors  or  administrators  of 
him,  the  said  testator,  should,  within  six  months  from  his  death,  pay 
to  the  plaintiff,  his  executors,  administrators,  or  assigns,  the  sum  of 
£3,000,  with  interest  for  the  same  at  the  rate  of  £5  per  cent  per  annum 
from  the  day  of  the  death  of  the  said  testator. 

In  the  month  of  February,  1886,  the  testator  filed  his  petition  in 
bankruptcy  ;  and  on  the  26th  of  February,  1886,  a  receiving  order  was 
made  thereupon. 

The  testator  did  not  include  his  obligation  under  the  deed  of  cove- 
nant in  his  statement  of  debts  and  liabilities,  and  the  plaintiff  carried  in 
no  proof  in  respect  thereof,  although  he  was  aware  of  the  bankruptcy 
of  the  testator!  .  .  . 

The  testator  died  on  the  2d  of  November,  1887,  and  the  plaintiff 
brought  this  action  against  his  executors  on  the  26th  of  June,  1888. 

One  of  the  defences  to  the  action  was  that  the  obligation  of  the  tes- 
tator, under  his  covenant  in  the  deed  of  the  6th  of  June,  1885,  was  a 
debt  or  liabilit}-  provable  in  hisbankruptc^y,  and  that  an}r  right  of  action 
upon  the  covenant  which  the  plaintiff  might  otherwise  have  had  was 
barred  b}*  the  bankruptcy  proceedings. 

[On  hearing  before  Mr.  Justice  STIRLING,  the  action  was  dismissed, 
and  the  plaintiff  appealed.] 

Sir  JAMES  HANNEN.    We  are  of  opinion  that  this  appeal  fails. 

The  question  seems  to  resolve  itself  into  whether  or  not  this  liability 
or  obligation  to  pay  a  sum  of  money  out  of  the  estate  of  the  deceased, 


SECT.  I.]  BARNETT   V.    KING.  477 

six  months  after  his  death,  is  a  liabilit}'  within  the  meaning  of  the  37th 
section  of  the  Bankruptcy  Act  of  1883. *  It  is  argued  that/ the  meaning 
of  the  section  is,  that  only  such  liabilities  are  capable  of  proof  as 
relate  to  the  debtor  himself;  and  that  liabilities  which  will  onlj-  arise 
after  his  death  are  not  within  the  meaning  of  the  section. 

I  am  of  opinion  that  that  is  too  narrow  a  construction  to  put  upon 
the  words  of  the  Act,  and  that  the  true  meaning  of  the  section  is  not 
merely  a  liability  or  obligation,  or  a  possibility  of  liabilit}'  or  obligation, 
to  pay  money  on  the  part  of  the  obligor  himself,  but  that  it  includes  a 
liability  or  obligation  for  the  payment  of  money  out  of  his  estate.  I 
think  that  the  observation  which  was  made  by  Lord  Justice  FRY  in 
the  course  of  the  argument  is  an  exceeding!}'  strong  one.  Suppos- 
ing the  narrow  view  to  be  the  correct  one,  the  effect  would  be,  that 
if  the  plaintiff,  the  holder  of  this  deed,  had  taken  the  steps  proper  to 
be  taken  in  the  bankruptcy,  he  could  not  have  proved  in  respect  of 
this  liability  under  the  Act  of  1883.  That  is  plainly,  to  my  mind, 
an  unreasonable  conclusion  to  arrive  at.  I  therefore  think  that  the 

1  37.  (1)  Demands  in  the  nature  of  unliquidated  damages  arising  otherwise  than 
by  reason  of  a  contract,  promise,  or  breach  of  trust,  shall  not  be  provable  in  bank- 
ruptcy. 

(2)  A  person  having  notice  of  any  act  of  bankruptcy  available  against  the  debtor 
shall  not  prove  under  the  order  for  any  debt  or  liability  contracted  by  the  debtor  sub- 
sequently to  the  date  of  his  so  having  notice. 

(3)  Save  as  aforesaid,  all  debts  and  liabilities,  present  or  future,  certain  or  con- 
tingent, to  which  the  debtor  is  subject  at  the  date  of  the  receiving  order,  or  to  which 
he  may  become  subject  before  his  discharge  by  reason  of  any  obligation  incurred  be- 
fore the  date  of  the  receiving  order,  shall  be  deemed  to  be  debts  provable  in  bank- 
ruptcy. 

(4)  An  estimate  shall  be  made  by  the  trustee  of  the  value  of  any  debt  or  liability 
provable  as  aforesaid,  which  by  reason  of  its  being  subject  to  any  contingency  or  con- 
tingencies, or  for  any  other  reason,  does  not  bear  a  certain  value. 

(5)  Any  person  aggrieved  by  any  estimate  made  by  the  trustee  as  aforesaid  may 
appeal  to  the  court. 

(6)  If,    in  the  opinion  of  the  court,  the  value  of  the  debt  or  liability  is  incapable  of 
being  fairly  estimated,  the  court  may  make  an  order  to  that  effect,  and  thereupon  the 
debt  or  liability  shall,  for  the  purposes  of  this  Act,  be  deemed  to  be  a  debt  not  prov- 
able in  bankruptcy. 

(7)  If,  in  the  opinion  of  the  court,  the  value  of  the  debt  or  liability  is  capable  of 
being  fairly  estimated,  the  court  may  direct  the  value  to  be  assessed,  before  the  court 
itself  without  the  intervention  of  a  jury,  and  may  give  all  necessary  directions  for  this 
purpose,  and  the  amount  of  the  value  when  assessed  shall  be  deemed  to  be  a  debt 
provable  in  bankruptcy. 

(8)  "  Liability  "  shall  for  the  purposes  of  this  Act  include  any  compensation  for 
work  or  labor  done,  any  obligation  or  possibility  of  an  obligation  to  pay  money  or 
money's  worth  on  the  breach  of  any  express  or  implied  covenant,  contract,  agree- 
ment, or  undertaking,  whether  the  breach  does  or  does  not  occur,  or  is  or  i«  not  likely 
to  occur  or  capable  of  occurring  before  the  discharge  of  the  debtor,  and  generally  it 
shall  include  any  e'xpress  or  implied  engagement,  agreement,  or  undertaking,  to  pay, 
or  capable  of  resulting  in  the  payment  of  money,  or  money's  worth,  whether  the  pay- 
ment is,  as  respects  amount  fixed  or  unliquidated ;  as  respects  time,  present  or  future, 
certain  or  dependent  on  any  one  contingency,  or  on  two  or  more  contingencies ;  as  to 
mode  of  valuation  capable  of  being  ascertained  by  fixed  rules,  or  as  a  matter  of 
opinion. 


478  TULLY  v.  SPARKES.  [CHAP.  VI. 

decision' of  Mr.  Justice  STIRLING  on  the  point  is  correct,  and  that  this 
appeal  must  be  dismissed  with  costs. 

BOWEN,  L.  J.     I  am  of  the  same  opinion. 

FRY,  L.  J.   I  agree.1 


TULLY  v.    SPARKES. 

KING'S  BENCH,  1729. 
[Reported  in  2  Lord  Raymond,  1546,  and  2  Strange,  867.2] 

DEBT  upon  a  bond  against  the  defendant  Sparkes  and  May  as  execu- 
tors of  William  Donelson,  setting  forth  that  Donelson  entered  into  a 
bond  in  £800  conditioned,  that  if  he,  his  heirs,  executors,  or  adminis- 
trators, should  pay  to  the  plaintiff  £400  within  two  months  after  the 
death  of  the  obligor  in  case  he  shall  marry  Martha  Latimer  and  she 
shall  survive  him,  then  the  bond  to  be  void.  The  plaintiff  then  avers, 
that  the  marriage  was  had  and  the  wife  survived,  and  the  defendants 
were  made  executors  ;  but  neither  they  nor  the  heir  have  paid  the 
money  according  to  the  condition.  The  defendant  May  pleads  that  he 
never  administered  or  proved  the  will,  and  the  plaintiff  as  to  him  enters 
a  nolle  pro  sequi.  The  other  defendant  Sparkes  prays  oyer  of  the  bond, 
which  is  set  out  without  the  condition  ;  and  then  pleads,  that  the  obligor 
was  a  trader,  and  after  entering  into  the  bond  committed  an  act  of 
bankruptcy,  whereupon  the  creditors  petitioned,  had  a  commission,  and 
.he  was  declared  a  bankrupt,  and  had  his  certificate,  which  was  con- 
firmed. To  this  the  plaintiff,  having  enrolled  the  condition  of  the  bond 
in  hcec  verba,  demurred  ;  and  the  defendant  joined  in  demurrer. 

The  case  was  argued  by  Mr.  Strange,  for  the  plaintiff,  and  by  Mr. 
Joceline,  for  the  defendant. 

It  was  insisted  upon  by  the  counsel  for  the  plaintiff,  that  this  bond 
was  not  discharged  by  the  act  of  bankruptcy  and  certificate  within  the 
intention  of  the  acts.  Nor  is  the  defendant  aided  03'  the  act  of  7  G.  I. 
c.  31,  for  explaining  and  making  more  effectual  the  several  acts  con- 
cerning bankrupts ;  for  the  £400  in  the  condition  was  paj'able  at  a  day 
after  the  bankruptcy  committed,  viz.  within  two  months  after  the  death 

1  The  statement  of  facts  has  been  abbreviated. 

The  first  statute  expressly  allowing  proof  of  debts  payable  in  the  future  was  7  Geo. 
I.  c.  31  (1721),  which  purported  to  be  enacted  to  settle  a  point  which  had  been  dis- 
puted, though  in  Cattowell  v.  Clutterbuck,  2  Str.  867,  such  a  debt  was  held  not 
provable.  This  statute  was,  however,  held  to  apply  only  to  such  debts  if  written 
security  was  given.  Parslow  v.  Dearlove,  4  East,  438.  And  in  1803,  Lord  Eldon 
held  that  a  bond  payable  after  death,  not  being  payable  at  a  day  certain,  was  not 
provable.  Ex  parte  Barker,  9  Ves.  1 10.  49  Geo.  III.  c.  121,  however,  covered  all 
such  debts.  Even  though  no  express  provision  were  made  for  such  debts  in  a 
modern  statute,  they  would  doubtless  be  held  provable.  Lowell,  Bankruptcy,  124. 

2  The  case  is  here  reprinted,  with  some  omissions,  partly  from  each  of  the  reports 


SECT.  I.]  TULLY   V.    SPARKES.  479 

of  William  Donalson  the  bankrupt,  and  upon  two  contingencies,  viz.  if 
Martha  Latimer  married  him,  and  survived  him.  And  a  case  was  cited 
between  Godling  and  Godling,  Pasch.  11  Ann.  wherein  an  action  of  debt 
upon  a  bond  dated  before  the  act  of  bankruptcy  committed  by  the  de- 
fendant, it  appeared  the  money  in  the  condition  was  not  payable  till 
after  the  act  of  bankruptcy  ;  the  defendant  insisted  he  ought  to  be  dis- 
charged upon  common  bail  by  virtue  of  the  statutes  about  bankrupts, 
but  it  was  ruled  that  he  should  be  held  to  special  bail.  And  the  plain- 
tiffs could  not  come  to  prove  this  debt  within  the  7th  G.  I.  c.  31,  be- 
cause it  depends  upon  two  contingencies. 

On  the  other  side  it  was  insisted  on  for  the  defendants,  that  this  was 
debitum  in  praesenti,  though  it  was  solvendum  in  futuro.  Cro.  Jac. 
Neal  v.  Sheffield,  254,  and  therefore  would  be  barred  by  the  act  of 
bankruptcy  and  certificate,  &c. 

But  all  the  judges  were  of  opinion,  that  a  creditor  upon  a  bond,  with 
condition  to  pay  money  at  a  future  day  subsequent  to  the  act  of  bank- 
ruptcy, before  7  G.  I.  c.  31,  could  not  be  admitted  to  prove  such  debt, 
or  to  have  an}'  dividend,  before  such  security  became  payable.  And 
that  act  recites  it  to  have  been  a  question,  for  remedy  whereof  that  act 
was  made.  And  it  would  be  hard  upon  the  former  acts,  to  put  such  a 
construction  as  to  bar  a  man  of  his  debt,  when  he  could  not  come  into 
the  commission,  and  have  the  benefit  of  it.  Then  as  to  the  statute  7 
G.  I.  c,  31,  that  enacts  that  an}'  person  who  hath  given  or  shall  there- 
after give  credit  on  such  security  as  aforesaid,  [referring  to  the  securi- 
ties mentioned  in  the  recital]  to  any  person  who  was  or  should  become 
a  bankrupt,  upon  a  good  and  valuable  consideration  bona  fide  for  any 
sura  of  money  or  other  matter  or  thing  whatsoever,  which  should  not  be 
due  or  payable  at  or  before  the  time  of  such  persons  becoming  bank- 
rupts, shall  be  admitted  to  prove  his  bond,  &c.  for  the  same,  in  such 
manner  as  if  it  was  payable  presently,  and  not  at  a  future  day,  and 
shall  receive  a  proportionable  dividend,  &c.,  of  such  bankrupt's  estate 
in  proportion  to  the  other  creditors  of  such  bankrupt,  deducting  only 
thereout  a  rebate  of  interest,  and  discounting  such  securities  payable  at 
future  times,  after  the  rate  of  £5  per  cent  per  annum  for  what  he  shall 
so  receive,  to  be  computed  from  the  actual  payment  thereof,  to  the  time 
such  debt  or  sum  of  money  should  or  would  have  become  payable  in 
and  by  such  securities  as  aforesaid.  Then  follows  a  clause  that  the 
bankrupt  should  be  discharged  of  such  securities.  Now  it  being  un- 
certain whether  this  bond  should  ever  become  due  or  not,  it  depending 
upon  two  contingencies  which  had  not  both  happened  at  the  time  of  the 
act  or  bankruptcy  committed,  it  was  impossible  to  make  such  abate- 
ment of  £5  per  cent  as  the  act  directs;  and  therefore  this  bond,  the 
court  held,  was  not  within  that  act ;  and  therefore  they  were  of  opinion 
to  give  judgment  for  the  plaintiff.1 

1  This  case  represented  the  English  law  (see  Christian  on  Bankruptcy,  I.  287,  2d 
ed.)  until  the  passage  of  6  Geo.  IV.  c.  16,  though  in  a  few  cases  the  court  was  able 
to  avoid  the  difficulty  by  holding  that  where  the  debt  was  secured  by  a  bond  with  a 


480  RIGGIN   V.   MAGWIRE.  [CHAP.  VL 

RIGGIN  v.   MAGWIRE. 

SUPREME  COURT  OF  THE  UNITED  STATES,  DECEMBER  TERM,  1872. 
[Reported  in  15  Wallace,  549.] 

ERROR  to  the  Supreme  Court  of  the  State  of  Missouri. 

Magwire  sued  Riggin  in  the  Circuit  Court  of  St.  Louis  County, 
Missouri,  to  recover  damages  for  a  breach  of  covenant.  The  defend- 
ant pleaded  a  discharge  under  the  Bankrupt  Act  of  1841,  obtained  in 

penalty,  and  the  penalty  was  forfeited  by  the  terms  of  the  bond  before  the  bankruptcy, 
the  debt  might  be  proved,  though  the  sum  really  recoverable  would  not  have  been  the 
full  penalty.  Ex  parte  Winchester  1  Atk.  116;  Ex  parte  Marshall,  1  M.  &  A.  118. 
6  Geo.  IV.  c.  16,  made  express  provision  (sec.  56)  for  the  proof  of  contingent  debts.  This 
section  was  construed  somewhat  narrowly,  and  it  was  held  that  "  there  must  not  only 
be  a  debt  or  engagement  to  pay  a  definite  sum,  but  also  that  the  contingency  on  which 
the  debt  was  payable  should  be  one  reducible  to  a  matter  of  calculation,  so  as  to  allow 
a  value  to  be  put  on  the  debt  for  the  purpose  of  proof."  Robson  on  Bankruptcy  (7th 
ed.),  272,  and  see  Atwood  v.  Partridge,  4  Bing.  209 ;  Boorman  v.  Nash,  9  B.  &  C.  145 ; 
Ex  parte  Tindal,  Mont.  &  Mac.  415  ;  Ex  parte  Grundy,  ib.  293;  Johnson  v.  Compton, 
4  Sim.  37;  Yallop  v.  Ebers,  1  B.  &  Ad.  700;  Ex  parte  Davis,  Mont.  121,  297; 
Ex  parte  Marshall,  1  Mont.  £  Ayrt.  118;  Ex  parte  Thompson,  Mont.  &  Bli.  219; 
Thompson  &  Thompson,  2  Bing.  N.  C.  168;  Green  v.  Bicknell,  8  A.  &E.  701  ;  Field  v. 
Toppin,  4  Q.  B.  386 ;  Ex  parte  Whitmore,  3  De  G.  &  S.  565 ;  Hinton  v.  Acraman, 
2  C.  B.  367 ;  Woolley  v.  Smith,  3  C.  B.  610 ;  Wallis  v.  Swinburne,  1  Ex.  203 ;  Ex  parte 
Evans,  3  De  G  &  S.  561 ;  South  Stafford  Ry.  Co.  v.  Burnside,  5  Ex.  129. 

The  Act  of  1849, 12  &  13  Viet.  c.  106,  re-enacted  (in  sec.  177)  the  provision  of  the  pre- 
vious act,  and  added  (sec.  178)  a  further  provision  allowing  valuation  and  proof  of  "  a 
liability  to  pay  money  upon  a  contingency  which  shall  not  have  happened."  This  was 
obviously  intended  to  cover  the  cases  which  had  been  held  not  included  under  the  words 
contingent  debts,  but  the  courts  construed  the  word  "liability  "  narrowly,  holding  that 
"  the  liability  must  be  to  pay  a  sum  of  money  of  certain  amount,  or  at  all  events  a  sum 
the  amount  of  which  could  be  ascertained  by  some  settled  data ;  and  that  the  contin- 
gency on  which  the  liability  depended  must  not  be  too  remote,  but  that  there  must  be  a 
single  contingency  reducible  to  a  matter  of  calculation,  and  capable  of  valuation."  Rob- 
son  on  Bankruptcy  (7th  ed  )  275,  and  see  Amott  v.  Holden,  18  Q.  B.  593 ;  Warburg  v. 
Tucker,  5  E.  &  B.  384 ;  Young  v.  Winter,  16  C.  B.  401 ;  Maples  v.  Pepper,  18  C.  B.  177  ; 
Ex  parte  Todd,  6  D.  M.  &  G.  744  ;  Hoare  v.  White  3  Jur.  N.  s.  415 ;  White  r.  Corbett, 
1  E.  &  E.  692  ;  Boyd  v.  Robins,  5  C.  B.  N.  s.  597  ;  Adkins  v.  Farringdon,  5  H.  &  N. 
586;  Parker  v.  Ince,  4  H.  &  N.  53;  Mudge  v.  Rowan,  L.  R.  3  Ex.  85  ;  Betteley  v. 
Stainsby,  L.  R.  2  C.  P.  568 ;  Martin's  Anchor  Co.  ».  Morton,  L.  R.  3  Q.  B.  306 ;  Hastie's 
Case,  L.  R.  7  Eq.  3,  4  Ch.  App.  274 ;  Ex  parte  Wiseman,  L.  R.  7  Ch.  App.  35  ;  Kent 
v.  Thomas,  L.  R.  6  Ex.  312.  The  Act  of  24  &  25  Viet.  c.  134,  made  no  further 
direct  provision  for  proof  of  contingent  liabilities  than  the  preceding  acts,  but  it  con- 
tained a  provision  (see  153)  for  the  assessment  of  damages  in  claims  for  unliquidated 
damages  growing  out  of  contracts.  This  was  held  to  include  such  liabilities  only 
as  arose  from  breach  of  an  express  contract  before  bankruptcy.  Ex  parte  Mendel, 
1  De  G.  J.  &  S.  330 ;  Sharland  v.  Spence,  L.  R,  2  C.  P.  456  ;  Cary  v.  Dawson,  L.  R. 
4  Q.  B.  568  ;  Johnson  v.  Skafte,  L.  R.  4  Q.  B.  700. 

In  1869,  however,  an  adequate  statutory  provision  was  made  by  32  &  33  Viet.  c.  71, 
sec.  31,  which  so  far  as  affects  contingent  liabilities  has  been  repeated  in  the  act  of  1883, 
now  in  force.  Under  this  provision  the  only  ground  for  refusing  proof  of  a  contingent 
liability  is,  that  it  is  impossible  fairly  to  estimate  the  value  of  the  claim.  Under  this 


SECT.  I.]  RIGGIN   V.   MAGWIRE.  481 

June,  1843,  but  his  plea  was  disallowed,  both  by  the  lower  court  and 
by  the  Supreme  Court  of  Missouri  on  appeal.  He,  therefore,  brought 
the  case  here  by  writ  of  error. 

The  case  was  this  :  — 

On  the  2d  of  December,  1839,  Riggin  conveyed  a  certain  tract  of 
land  near  St.  Louis  to  one  Ellis,  in  fee.  The  operative  words  of  the 
convej'ance  were  "grant,  bargain,  sell,"  etc.,  which  words  in  Missouri 
create  a  covenant  that  the  grantor  has  an  indefeasible  estate  in  fee. 
Rev.  Stat.  1855,  c.  32,  §  14  ;  Magwire  v.  Riggin,  44  Mo.  512.  The  fact 
was  that,  prior  to  the  execution  of  this  deed,  the  property  had  belonged 
to  one  Martin  Thomas,  whose  wife  had  never  relinquished  her  right  to 
dower  in  it.  But  Thomas  was  then  living,  and  did  not  die  until  1848, 
several  years  after  the  alleged  discharge  of  Riggin  as  a  bankrupt. 
The  property  afterwards,  by  the  regular  devolution  of  title,  came  into 
possession  of  Magwire,  who  sold  it  in  lots  to  various  persons.  In  1868 
these  persons  were  sued  by  Mrs.  Thomas,  widow  of  Martin  Thomas, 
for  the  value  of  her  dower,  and  were  obliged  to  pay  it,  and  the  plain- 
tiff was  obliged  to  refund  them  the  amount.  He,  therefore,  brought 
this  suit  against  Riggin  for  damages  under  his  implied  covenant  of 
indefeasible  seisin. 

The  question  was,  whether  Riggin  was  discharged  from  this  demand 
by  his  decree  of  discharge  in  bankruptcy  in  1843?  Whether  he  was 
or  not  depended  on  the  question  whether  the  claim  could  have  been 
proved  in  that  proceeding.  The  5th  section  of  the  Bankrupt  Act  of 
1841,  5  Stat.  at  Large,  445,  declares  as  follows :  — 

"  All  creditors  whose  debts  are  not  due  and  payable  until  a  future 
day,  all  annuitants,  holders  of  bottomiy  and  respondentia  bonds,  hold- 
ers of  policies-  of  insurance,  sureties,  indorsers,  bail,  or  other  persons 
having  uncertain  or  contingent  demands  against  such  bankrupt,  shall 
be  permitted  to  come  in  and  prove  such  debts  and  claims  under 
the  act,  and  shall  have  a  right,  when  these  debts  or  claims  become 
absolute,  to  have  the  same  allowed  them ;  and  such  annuitants  and 
holders  of  debts  payable  in  future  may  have  the  present  value  thereof 

section  it  has  been  held  that  there  may  be  proof  of  damages  from  failure  of  a  trustee 
in  bankruptcy  to  take  a  lease  as  the  bankrupt  had  agreed  to  do :  Ex  parte  Llynvi 
Coal  Co.,  L.  R.  7  Ch.  App.  28 ;  so  damages  for  breach  of  an  agreement  to  furnish 
steam  power,  though  determinable  in  a  certain  contingency  :  Ex  parte  Waters,  L.  R. 
8  Ch-  App.  562 ;  x>r  for  failure  to  pay  an  annuity  :  Ex  pnrte  Jackson,  20  W.  R.  1023  ; 
or  of  a  surety's  right  to  indemnity  or  contribution,  though  contingent  on  future  events : 
Ex  parte  Delmar,  38  W.  R.  752;  Wolmerhausen  v.  Gullick,  [1893]  2  Ch.  514;  Re 
Paine,  [1897]  1  Q.  B.  122;  or  of  the  possible  liability  of  a  stockholder  for  future 
calls:  Re  Mercantile  Marine  Ins.  Co.,  25  Ch.  D.  415;  Re  McMahon,  [1900]  1  Ch.  173. 

Some  rights,  however,  cannot  be  valued,  and  hence  not  proved  ;  as  a  covenant  not  to 
revoke  a  will :  Robinson  v.  Onunaiiey,  21  Ch.  D.  780  ;  23  Ch.  I).  285  ;  a  possibility  of 
having  to  pay  costs  to  assert  a  legal  right:  Vint  r.  Hudspith,  30  Ch.  I).  24;  future 
liability  for  alimony  :  Ex  parte  Linton,  15  Q.  B.  1).  239. 

Unless  an  order  is  made  by  the  bankruptcy  court  declaring  that  the  value  of  a 
claim  cannot  fairly  be  estimated,  it  will  be  held  to  be  barred.  Hardy  v.  Fothergill,  13 
App.  Cas.  351. 


482  RIGGIN   V.   MAGWIRE.  [CHAP.  TL 

ascertained  under  the  direction  of  such  court,  and  allowed  them 
accord  ingly,  as  debts  in  prcesenti." 

Messrs.  Glover  and  Shepley,  for  the  plaintiff  in  error. 

Messrs.  Blair  and  Dick,  contra. 

Mr.  Justice  BRADLEY  delivered  the  opinion  of  the  court. 

It  is  argued  that  under  the~  right  given  by  the  fifth  section  of  the 
Bankrupt  Act  of  1841  to  prove  "  uncertain  and  contingent  demands," 
the  claim  in  this  case  could  have  been  proven  under  the  act.  But  the 
better  opinion  is,  that  as  long  as  it  remained  wholl\-  uncertain  whether 
a  contract  or  engagement  would  ever  give  rise  to  ah  actual  duty  or 
liability,  and  there  was  no  means  of  removing  the  uncertainty  '03'  calcu- 
lation, such  contract  or  engagement  was  not  provable  under  the  act 
of  1841.  See  1  Smith's  Leading  Cases  (6th  Am.  ed.),  p.  1137,  notes  to 
Mills  v.  Auriol,  by  Hare.  In  1843  Martin  Thomas  was  still  living,  and 
there  was  no  certaint}'  that  his  wife  would  ever  survive  him.  It  was 
uncertain  whether  there  would  ever  be  any  claim  or  demand.  On  what 
principle,  then,  could  the  covenant  have  been  liquidated  or  reduced  to 
present  or  probable  value?  If  an  action  at  law  had  been  brought  on 
the  covenant  at  that  time,  nominal  damages  at  most,  if  any  damages 
at  all,  could  have  been  recovered.  It  did  not  come  within  the  category 
of  annuities  and  debts  paj-able  in  future,  which  are  absolute  existing 
claims.  If  it  had  come  within  that  category,  the  value  of  the  wife's 
probability  of  survivorship  after  the  death  of  her  husband  might  have 
been  calculated  on  the  principles  of  life  annuities.  Had  a  proposition 
for  a  compromise  of  her  right  been  made  between  her  and  the  owner 
of  the  land,  such  a  mode  of  estimation  would  have  been  very  proper. 
But,  without  authority  from  the  statute,  the  assignee  would  not  have 
been  justified  in  receiving  such  an  estimate  and  making  a  dividend 
on  it. 

It  is  unnecessary  to  review  the  authorities  pro  and  con  on  the  subject. 
The}*  are  quite  numerous,  and  mostly  cited  in  the  note  of  Mr.  Hare, 
above  referred  to.  The  case  is  so  clear  that  we  have  hardly  entertained 
a  doubt  about  it.  Judgment  affirmed.^ 

1  Bennett  v.  Bartlett,  6  Cash.  225 ;  French  v.  Morse,  2  Gray,  111;  Burruss  t'.  Wil- 
kinson, 33  Miss.  537,  ace.;  Stilton  v.  Pease,  10  Mo.  473;  Jemison  v.  Blowers,  5  Barb. 
686,  contra. 

The  possible  liability  of  a  surety  on  a  bond  not  defaulted  was  held  not  provable 
under  the  act  of  1841  in  Turner  v.  Esselman,  15  Ala.  690;  Woodard  v.  Herbert,  24 
Me.  358;  Ellis  v.  Ham,  28  Me.  335;  Loring  v.  Kendall,  1  Gray,  305;  Goodwin  v. 
Stark,  15  N.  H.  218 ;  Dyer  v.  Cleveland,  18  Vt.  241. 


SECT.  I.]  SAYRE   V.   GLENN.  483 

SAYRE  v.  GLENN. 

SUPREME  COURT  OF  ALABAMA,  DECEMBER  TERM,  1888. 
[Reported  in  87  Alabama,  631.] 

SOMERVILLE,  J.  The  questions  arising  in  this  case,  except  the  suffi- 
ciency of  the  defence  based  on  the  plea  of  defendant's  bankruptcy,  are 
settled  against  the  appellant  in  Lehman,  Durr  &  Co.  v.  Glenn,  and 
Seinple  u.  Glenn,  decided  at  the  present  term. 

This  plea  sets  up  the  fact  that  the  defendant,  Sayre,  on  petition  filed 
in  the  proper  District  Court  of  the  United  States,  on  the  1st  of  June, 
1870,  was  duly  adjudicated  to  be  a  bankrupt,  and  thereafter  —  to  wit, 
on  April  22,  1871 — received  his  certificate  of  discharge,  as  provided 
for  by  the  bankrupt  law  of  March  2,  1867. 

To  this  plea  a  demurrer  was  sustained  ;  and  we  think  there  was  no 
error  in  this  ruling.  The  ground  of  demurrer,  which  seems  to  us  to  be 
fatal  to  the  sufficiency  of  the  plea,  is,  that  the  demand  in  question  was 
one  not  provable  against  the  estate- of  the  bankrupt,  and  was  not  there- 
fore affected  by  the  discharge. 

The  action  is  one  for  the  assessment  of  thirty  per  cent  upon  an  unpaid 
subscription  to  the  capital  stock  of  the  National  Express  &  Transpor- 
tation Company.  This  assessment  was  ordered  to  be  made  b}T  the 
Chancery  Court  of  the  city  of  Richmond,  Va.,  by  decree  rendered 
December  14,  1880.  The  subscription  itself  was  for  the  sum  of  one 
thousand  dollars,  payable  "  in  such  instalments  as  may  be  called  for 
by  said  company,  and  to  pay  one  per  cent  at  the  time  of  subscription. 

The  bankrupt  law  allowed  proof  to  be  made,  not  only  of  debts  due 
from  the  bankrupt  at  the  commencement  of  the  proceedings  in  bank- 
ruptc}',  but  of  "  all  debts  then  existing,  but  not  pa}'able  until  a  future 
day,"  a  rebate  of  interest  being  made.  U.  S.  Rev.  Stat.,  §  5067.  The 
law  was  also  made  to  embrace  "contingent  debts  and  liabilities,"  the 
right  of  the  creditor  to  share  in  dividends  being  made  to  depend  upon 
the  happening  of  the  contingency  before  the  order  of  the  bankrupt 
court  for  a  final  dividend ;  or  the  ability  of  the  court  to  ascertain  and 
liquidate  the  "  present  value"  of  the  debt  or  liability.  U.  S.  Rev.  Stat., 
§  5068.  The  phrase  "  contingent  debt"  has  been  construed  to  mean, 
not  a  demand  whose  existence  depended  on  a  contingenc}',  but  an 
existing  demand  the  cause  of  action  upon  which  depends  on  a  contin- 
gency. French  v.  Morse,  68  Mass.  Ill ;  Woodard  v.  Herbert,  24  Me. 
358. 

It  is  our  opinion  that  a  call  of  this  nature  made  upon  an  unpaid  sub- 
scription to  corporate  stock  is  not  a  provable  debt  within  the  meaning 
of  the  bankrupt  law.  The  precise  point  was  decided  by  the  Court  of 
Appeals  of  Maryland,  in  Glenn  v.  Howard,  65  Md.  40  (1885),  where 
the  question  is  fully  discussed.  It  was  suggested  that  there  was  no 
right  of  action  on  the  subscription  until  a  call  was  made,  either  by  the 


SAYRE   v.    GLENN.  [CHAP.  VI. 

governing  officers  of  the  corporation,  or  by  order  of  the  Chancery  Court 
having  jurisdiction  to  make  such  an  assessment.  It  might  be  that  such 
call  might  never  be  made  in  any  event ;  and  if  so,  there  would  never 
exist  any  liability  to  pay  anything  on  it.  It  was  said  not  to  be  a  debt 
in  prcesenti,  payable  in  future.  The  demand,  we  ma}-  add,  would  thus 
be  one  whose  existence  would  depend  upon  a  contingenc}'  rather  than 
one  that  existed  already,  with  a  right  of  action  on  it  depending  on  such 
contingency.  It  was  accordingly  held,  that  where  a  call  was  made  on 
a  subscription  of  stock  identical  with  that  here  in  controversy,  after  the 
discharge  of  the  subscriber  in  bankruptc}7,  it  would  not  be  affected  by 
the  provisions  of  the  bankrupt  law,  because  the  demand  was  one  not 
provable  under  the  law  against  the  bankrupt's  estate.  A  ruling  of  the 
same  kind  was  made  in  South  Staffordshire  R.  Co.  •?>.  Burnside,  5  Exch. 
129,  which  has  generally  been  since  followed  by  the  English  courts. 
See  also  Glenn  v.  Clabaugh,  65  Md.  65  ;  and  Riggin  v.  Magwire,  15 
Wall.  549  ;  Steele  v.  Graves,  68  Ala.  21. 

The  assignee  of  the  bankrupt  was  not  bound  to  accept  the  stock  in 
this  corporation  as  a  portion  of  the  bankrupt's  assigned  property,  as  it 
was  of  an  onerous  and  unprofitable  character,  and  it  does  not  appear 
that  he  ever  did  so.  The  bankrupt  proceedings  do  not  therefore  affect 
the  question  of  the  stockholder's  liability.  File  Co.  v.  Garrett,  110 
U.S.  288;  Rugeley  v.  Robinson,  19  Ala.  404;  Glenn  v.  Howard, 
supra. 

The  demurrer  to  the  plea  of  bankruptcy  was  properly  sustained.' 
The  other  assignments  of  error  are  without  merit,  and  the  judgment 
is  affirmed.1 

1  Glenn  v.  Howard,  65  Md.  40,  ace.;  Irons  v.  Bank,  17  Fed.  Rep.  308;  Glena  v. 
Abell,  39  Fed.  Rep.  10;  Carey  v.  Mayer,  79  Fed.  Rep.  926,  contra. 

Iii  all  these  cases  the  corporation  had  suspended  payment  or  made  a  general  assign- 
ment before  the  date  of  the  bankruptcy.  In  the  case  last  cited  the  court  said  :  "The 
decision  of  this  case  is  placed  upon  the  ground  that  the  deed  of  the  corporation  of  all 
its  assets  to  trustees  for  the  benefit  of  creditors,  being  a  declaration  by  the  corporation 
of  its  insolvency  and  also  the  commencement  of  the  winding  up,  preceded  the  fili,ig 
of  the  defendant's  petition  in  bankruptcy,  and  that,  by  reason  of  these  facts,  the  de- 
fendant's obligation  as  a  stockholder  became  a  liability  with  a  contingency,  viz.,  tie 
ascertainment  by  a  Court  of  Chancery  of  the  amount  to  be  paid ;  that  this  amount 
could  have  been  made  certain ;  and  that  it  was  the  duty  of  the  trustees  to  endeavor  to 
make  it  certain  before  the  order  for  a  final  dividend." 

Under  the  law  of  1867  it  was  held  that  the  liability  of  the  surety  of  a  bond  was 
provable  though  the  liability  of  the  principal  had  not  been  fixed.  United  States  v. 
Throckmorton,  8  B.  R.  309;  Jones  v.  Knox,  46  Ala.  53;  Fisher  v.  Tifft,  127  Mass. 
313  (see  also  McDermott  ?>.  Hall,  177  Mass.  224) ;  Fisher  v.  Tifft,  12  R.  I.  56. 

But  see  contra,  United  States  v.  Rob  Roy,  13  B.  R.  235;  Steele  v.  Grav.es,  68  Ala. 
21  (overruling  Jones  v.  Knox,  46  Ala.  53). 

The  liability  of  the  principal  in  a  replevin  or  attachment  bond  was  held  provable 
in  Wolf  v.  Stix,  99  U.  S.  1,  and  Hill  v.  Harding,  130  U.  S.  699,  though  the  question 
had  not  been  decided  at  the  time  of  bankruptcy  whether  there  would  be  any  liability 
on  the  bond. 

An  annuity  was  held  provable  in  Haywood  v.  Shreeve,  44  N.  J.  L.  94. 

A  breach  of  warranty  where  the  right  of  action  arose  before  bankruptcy.  Williams 
v.  Harkins,  15  B.  R.  34;  Merrill  v.  Schwartz,  68  Me.  514. 


SECT.  I.]  MOCH   V.   MAKKET   STREET   NATIONAL   BANK.  485 


MOCH  v.  MARKET  STREET  NATIONAL  BANK. 

CIRCUIT  COURT  OP  APPEALS  FOR  THE  THIRD  CIRCUIT,  APRIL  22,  1900. 

[Reported  in  107  Federal  Reporter,  897.] 

BEFORE  ACHESON,  DALLAS,  and  GRAY,  Circuit  Judges. 

ACHESON,  Circuit  Judge.  The  question  presented  by  this  appeal  is 
whether  the  liabilit}-  of  a  bankrupt  indorser  of  commercial  paper,  whose 
liability  did  not  become  absolute  until  after  the  filing  of  the  petition  in 
bajikruptcyji  may  be_p roved  against  his  estate  after  such  liabilit}-  has 
become  fixed,  and  within  the  time  limited  for  proving  claims.  By  the 
first  section  of  the  bankrupt  law,  —  the  Act  of  July  1,  1898,  —  it  is 
declared  that  the  word  "debt,"  as  used  in  the  Act,  shall  include  "  any 
debt,  demand,  or  claim  provable  in  bankruptcy."  Section  63  declares 
what  debts  of  the  bankrupt  ma}'  be  proved  and  allowed  against  his 
estate,  and  ranges  the  provable  debts  in  five  subdivisions,  numbered 
from  1  to  5,  inclusive.  For  present  purposes  we  need  quote  only  two 
of  those  subdivisions,  namely  :  — 

"  (1)  A  fixed  liability,  as  evidenced  by  a  judgment  or  an  instrument 
in  writing,  absolutely  owing  at  the  time  of  the  filing  of  the  petition 
against  him,  whether  then  payable  or  not,  with  any  interest  thereon 
which  would  have  been  recoverable  at  that  date,  or  with  a  rebate  of 
interest  upon  such  as  were  not  then  paj'able  and  did  not  bear  interest;" 
"  (4)  founded  upon  an  open  account,  or  upon  a  contract  express  or 
implied." 

(  It  :irly  the  liability  of  an  indorser  is  within  the  veiy  words  of  this 
fourth  subdivision.  As  was  said  by  the  Supreme  Court  in  Martin  v. 
Cole,  104  U.  S.  30,  37,  26  L.  Ed.  647,  the  contract  created  by  the 
indorsement  of  commercial  paper  is  an  "express  contract,"  and  "its 
terms  are  certain,  fixed,  and  definite."  The  indorser's  engagement  is 
to  pay  a  sum  certain  at  a  fixed  date,  to  wit,  the  amount  of  the  bill  or 
note  at  its  maturit}*,  if  it  is  not  paid  upon  due  presentment  by  the 
part}-  primaril}-  liable,  upon  due  notice  of  its  dishonor  being  given  to 
the  indorser.  If  it  can  be  affirmed  that  such  an  unmatured  liability  is 
not  a  "debt,"  in  a  technical  sense,  certainly  it  is  a  "demand"  or 
"claim,"  and  comes,  it  seems  to  us,  within  the  scope  of  the  fourth 
subdivision  of  section  63  of  the  Act.  The  primary  purpose  of  the 
bankrupt  act  was  to  relieve  insolvent  debtors  from  their  pecuniary 
liabilities,  and  to  secure  ratable  distribution  of  their  estates  among 
their  creditors.  It  is  not,  then,  to  be  lightl}-  believed  that  Congress 
intended  to  exclude  from  the  operation  and  benefits  of  the  Act  un- 
matured indorsements  of  commercial  paper,  which  in  every  commercial 
Community  so  often  constitute  a  large  proportion  of  the  indebtedness 
of  failing  debtors.  Of  course,  if  not  provable,  such  liabilities  are  not 
discharged.  Now,  a  construction  leading  to  results  so  foreign  to  the 


486  IN   RE   BINGHAM.  [CHAP.  VI. 

general  purpose  of  the  law  is  not  to  be  adopted  unless  plainly  required 
by  the  language  of  the  Act.  We  cannot  see  that  such  an  interpretation 
is  demanded  by  anything  contained  in  the  Act.  The  first  and  fourth 
subdivisions  of  section  63  are  distinct  provisions,  and  are,  we  think, 
independent  of  each  other.  We  are  unable  to  agree  to  the  proposition 
that  subdivision  1  qualifies,  and  is  to  be  carried  down  and  read  into, 
subdivision  4.  On  the  face  of  the  Act  the}-  are  distinct.  Moreover, 
reasonable  effect  can  be  given  to  both  by  treating  them  as  separate 
and  independent  clauses.  There  are  well-known  instruments  —  for 
example,  surety  bonds  —  under  which  the  liability  is  contingent  on 
future  defaults,  and  where  the  amount  of  liability  is  wholly  uncertain, 
depending  on  the  nature  of  the  default.  To  instruments  of  this  char- 
acter, where  the  liabilit}'  is  remote  and  is  uncertain  in  amount  and 
otherwise,  subdivision  1  is  fairly  referable  ;  but  we  think,  with  the 
court  below,  that  the  contract  created  by  the  indorsement  of  commer- 
cial paper  is  not  governed  b}*  that  subdivision,  but  falls  within  sub- 
division 4,  which  embraces  debts,  claims,  or  demands  founded  upon 
contracts,  express  or  implied.  Accordingly  the  order  of  the  District 
Court  allowing  the  claim  of  the  Market  Street  National  Bank  against 
the  estate  of  the  bankrupt,  Joel  J.  Gerson,  is  affirmed.1 


IN  RE  BTNGHAM. 

DISTRICT  COURT  FOR  THE  DISTRICT  OF  VERMONT,  MAY  30,  1899. 

[Reported  in  94  Federal  Reporter,  796.] 

WHEELER,  District  Judge.  At  the  time  of  the  filing  of  the  peti- 
tion the  bankrupt  owed  James  E.  Hartshorn  $110.50,  Hartshorn 
owed  the  bankrupt  $554.70,  and  both  were  holden  on  a  note  of  $1,200 
to  a  savings  bank,  one-half  of  which  each  ought  to  pay.  The  baok 
has  proved  its  claim,  and  Hartshorn  has  taken  up  the  note.  One- 
half  of  what  he  paid  was  his  own  debt,  and  he  can  have  no  claim 
against  the  bankrupt  estate  growing  out  of  that.  He  insists  that 
the  balance  of  direct  claims  between  him  and  the  bankrupt  should 
be  set  off  against  what  he  has  paid  that  the  bankrupt  ought  to  have 
paid,  and  that  balance  should  stand  as  a  valid  claim  in  his  favor 
against  the  estate.  The  bankrupt  was  impliedly  bound  to  save  him 
harmless  from  this  part  of  that  debt,  and  has  not  done  so ;  but  the 
detriment  has  occurred  since  the  filing  of  the  petition,  and,  till  that 

1  Re  Gerson,  105  Fed.  891 ;  Re  O'Donnell,  131  Fed.  150;  Re  Philip  Semmer  Glass 
Co.,  135  Fed.  77  (C.  C.  A.);  Re  Rothenberg,  140  Fed.  798;  Re  Smith,  146  Fed.  923; 
Cohen  v.  Pecharsky,  121  N.  Y.  Supp.  602,  ace.  See  also  Re  Lyon  Beet  Sugar  Co.,  192 
Fed.  445. 

Re  Schaefer,  104  Fed.  973,  contra.  See  also  Rice  v.  Murphy,  109  Me.  101;  Morgan 
v.  Wordell,  178  Mass.  350;  Coding  v.  Rosenthal,  180  Mass.  43. 


SECT.  I.]  MACE   V.   WELLS.    .  487 

occurrence,  Hartshorn  had  no  provable  claim  on  that  account.  By 
this  bankrupt  act  all  claims  turn  upon  their  status  at  the  time  of 
the  filing  of  the  petition,  and  decisions  upon  statutes  having  different 
provisions  in  this  respect  will  not  afford  safe  guides  for  the  construe 
tion  of  this.  It  affords  relief  for  a  surety  when  the  creditor  does  not 
prove  the  claim  by  allowing  the  surety  to  prove  it  for  subrogation, 
but  nothing  more.  The  relief  is  the  same  that  the  surety  would  have 
if  the  creditor  should  prove  the  claim,  and  get  what  could  be  had 
upon  it  voluntarily.  The  creditor  has  no  right  to  anj'thing  more 
than  payment,  and  the  surety  who  has  borne  the  burden  is  entitled 
to  the  benefit.  These  rights  arise,  not  from  the  original  contract  of 
suretyship,  but  from  the  equities  of  the  subsequent  transactions. 
Miller  v.  Sawyer.  30  Vt.  412.  Subrogation  of  the  surety  to  the  rights 
of  the  creditor  does  not  enlarge,  them.  They  extend  only  to  such 
dividends  as  the  creditor  can  have.  Here,  Hartshorn  should  pay  the 
balance  due  between  him  and  the  bankrupt  to  the  trustee,  now,  for 
administration ;  and  the  trustee  should  pay  the  dividends  on  the 
bankrupt's  half  of  the  note,  when  declared,  to  Hartshorn.  One-half 
of  bank  claim  to  stand  for  benefit  of  Hartshorn.  Hartshorn's  claim 
merged  in  balance  of  $444.20  due  the  estate.1 


MACE  v.  WELLS. 
SUPREME  COURT  OP  THE  UNITED  STATES,  JANUARY  TERM,  1849. 

[Reported  in  1  Howard,  272.] 

MR.  JUSTICE  MCLEAN  delivered  the  opinion  of  the  court. 

This  case  is  brought  before  the  court  by  a  writ  of  error  to  the 
Supreme  Court  of  the  State  of  Vermont,  under  the  twenty-fifth  section 
of  the  Judiciary  Act  of  1787. 

Wells,  as  the  surety  of  Mace,  became  bound  in  two  joint  and  several 
notes,  both  of  which  were  due  before  the  passage  of  the  bankrupt  law, 
in  August,  1841.  In  July,  1841,  Wells  paid  one  of  these  notes.  Mace 
was  discharged,  under  the  bankrupt  law,  on  the  22d  of  March,  1843. 
In  March,  1844,  Wells  paid  the  other  note,  and  then  sued  Mace  for 
the  recovery  of  the  money  on  both  notes.  The  facts  being  submitted 

1  In  Re  Schmechel  Cloak  &  Suit  Co.,  104  Fed.  Rep.  64,  the  court  held  that  a  surety 
who  by  paying  the  creditor  had  become  entitled  under  Sec.  57  i,  of  the  Bankrupt  Act, 
to  be  subrogated  to  the  creditor's  claim,  had  no  greater  rights  than  the  creditor,  and 
must  therefore  surrender  any  preference  the  creditor  had  received,  as  a  condition  of 
proof. 

In  Re  Heyman,  95  Fed.  Rep.  800,  the  court  held  that  where  a  surety  had  partly  paid 
the  creditor,  the  right  to  prove  the  whole  claim  against  the  principal  debtor  still  re- 
mained in  the  creditor. 


488  MACE    V.    WELLS.  [CHAP.  VI. 

to  the  county  court,  judgment  was  entered  for  the  plaintiff  for  the 
amount  of  the  note  last  paid ;  which  judgment  was  affirmed  by  the 
Supreme  Court  of  the  State. 

The  fourth  section  of  the  bankrupt  law  provides  that  a  "  discharge 
and  certificate,  when  duly  granted,  shall  in  all  courts  of  justice  be 
deemed  a  full  and  complete -discharge  of  all  debts,  contracts,  and 
other  engagements  of  such  bankrupt  which  are  provable  under  this 
act,"  &c. 

By  the  fifth  section  of  the  act,  it  is  provided  that  "all  creditors 
whose  debts  are  not  due  and  payable  until  a  future  day,  all  annuitants, 
holders  of  bottomry  and  respondentia  bonds,  holders  of  policies  of 
insurance,  sureties,  indorsers,  bail,  or  other  persons  having  uncertain 
or  contingent  demands  against  such  bankrupt,  shall  be  permitted  to 
come  in  and  prove  such  debts  or  claims  under  this  act,  and  shall  have 
a  right,  when  their  debts  and  claims  become  absolute,  to  have  the  same 
allowed  them,"  &c. 

Wells,  as  suret}',  was  within  this  section,  and  might  have  proved  his 
demand  against  the  bankrupt.  He  had  not  paid  the  last  note,  but  he 
was  liable  to  pay  it,  as  surety,  and  thaj  gave  him  a  right  to  prove  the 
claim  under  the  fifth  section.  And  the  fourth  section  declares,  that 
from  all  such  demands  the  bankrupt  shall  be  discharged.  This  is  the 
whole  case.  It  seems  to  be  clear  of  doubt.  The  judgment  of  the 
State  court  is  reversed.1 

1  In  accord  under  the  Act  of  1841  are,  Kyle  v.  Bostick,  10  Ala.  589;  Dean  v. 
Speakman,  7  Blackf.  317;  Frentress  v.  Markle,  2  Greene  (la.),  553;  Morse  v.  Hovey, 
1  Sandf.  Ch.  187  ;  Stark  ».  Stinson,  23  N.  H.  259  ;  Tubbs  v.  Williams,  9  Ired.  1 ;  Ful- 
wood  v.  Bushfield,  14  Pa.  90;  Stone  v.  Miller,  16  Pa.  450;  Clarke  v.  Porter,  25  Pa. 
141 ;  Hardy  v.  Carter,  8  Humph.  153. 

Contra  are  Payne  v.  Joyner,  6  Ark.  241 ;  Dunn  v.  Sparks,  1  Ind.  397 ;  Dole  v.  War- 
ren, 32  Me.  94 ;  McMulliii  v.  Bank  of  Penn.  Township,  2  Pa.  St.  343  ;  Cake  v.  Lewis, 
8  Pa.  493  ;  Goss  v.  Gibson,  8  Humph.  197  ;  Kerr  v.  Clark,  11  Humph.  77  ;  Wells  v. 
Mace,  17  Vt.  503;  Swain  v.  Barber,  29  Vt.  292. 

In  accord  under  the  Act  of  1867  are,  Liebke  v.  Thomas,  116  U.  S.  605  ;  Re  Perkins, 
10  B.  R.  529 ;  Lipscomb  v.  Grace,  26  Ark.  231  ;  Hays  v.  Ford,  55  Ind.  52  ;  Post  v. 
Losey,  111  Ind.  74;  Noland  v.  Wayne,  31  La.  Ann.  401;  Hunt  v.  Taylor,  108  Mass. 
508;  Fisher  v.  Tifft,  127  Mass.  313;  Fairbanks  v.  Lambert,  137  Mass.  373;  Miller  v. 
Gillespie,  59  Mo.  220 ;  Crofts  v.  Mott,  4  N.  Y.  603 ;  Tobias  v.  Rogers,  13  N.  Y.  59  ; 
Fisher  v.  Tifft,  12  R.  I.  56;  Eberhardt  v.  Wood,  2  Tenn.  Ch.  488,  Cocke  v.  Hoffman, 
5  Lea,  105,  109 ;  Smith  v.  Hodson,  50  Wis.  279,  284.  See  also  Fernald  v.  Clark,  84 
Me.  234  ;  McDermott  v.  Hall,  177  Mass.  224,  225. 

Contra  are,  Byers  v.  Alcorn,  6  111.  App.  39 ;  Dole  v.  Warren,  32  Me.  94  ;  Liddell  v. 
Wiswell,  59  Vt.  365. 

See  further  on  the  subject  of  this  note,  Ames  Cas.  Suretyship,  515-518,  557-559. 


SECT.  I.]  THAYER   V.    DANIELS.  489 

THAYER  v.  DANIELS. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  OCTOBER  TERM,  1872. 
[Reported  in  110  Massachusetts,  345.] 

CONTRACT.  The  declaration  alleged  that  the  defendant  as  principal, 
and  the  plaintiff  as  suret}*,  signed  a  note  for  $500,  dated  September 
28,  1861,  and  payable  on  demand  to  Nathan  George  or  order,  with  in- 
terest ;  that  the  plaintiff  signed  as  surety  without  consideration,  and 
for  the  accommodation  of  the  defendant ;  that  the  defendant  failed  to 
pa}1  the  note ;  and  that  the  plaintiff  had  to  pay  to  George  the  principal 
of  the  note  to  take  it  up.  The  answer  denied  the  allegations  of  the 
declaration,  and  also  set  up  the  statute  of  limitations,  and  a  discharge 
of  the  defendant  in  insolvenc}'. 

At  the  trial  in  the  Superior  Court,  before  BACON,  J.,  it  appeared  that 
the  plaintiff  executed  the  note  without  an}r  consideration,  and  for  the 
accommodation  of  the  defendant;  that  the  defendant  on  February  11, 
1862,  filed  his  petition  for  the  benefit  of  the  insolvent  law  ;  that  a  war- 
rant was  duly  issued  ;  that  at  the  third  meeting  of  the  creditors  George 
proved  the  note  against  the  defendant's  estate  ;  that  a  small  dividend 
was  then  declared  ;  that  afterwards,  in  August,  1862,  the  defendant  was 
duly  discharged  from  his  debts  ;  and  that  on  May  1,  1865,  the  plaintiff 
paid  to  George  on  the  note  $500,  which  was  less  than  the  amount  then 
due  upon  it,  and  took  it  up.  The  defendant  asked  the  judge  to  rule 
that  the  statute  of  limitations  began  to  run  against  the  plaintiff's  cause 
of  action  from  the  time  the  note  fell  due  ;  and  that  the  discharge  in 
bankruptc}T  was  a  bar  to  the  action  ;  but  the  judge  refused  so  to  rule, 
and  ruled  that  on  the  foregoing  facts  the  plaintiff  was  entitled  to  re- 
cover. The  jury  returned  a  verdict  for  the  plaintiff,  and  the  defendant 
alleged  exceptions. 

P.  E.  Aldrich  (S.  A.  Burgess  with  him),  for  the  defendant. 

T,  G.  Kent,  for  the  plaintiff. 

AMES,  J.  There  was  an  implied  promise,  on  the  part  of  the  defend- 
ant, as  principal,  to  indemnify  the  surety,  and  to  repay  to  him  all  the 
money  that  he  might  be  compelled,  in  consequence  of  his  liability  as 
surety,  to  pay  to  the  creditor.  Until  the  surety  has  been  compelled  to 
make  such  payment,  there  is  no  breach  of  this  implied  promise.  The 
cause  of  action  accrues  then  for  the  first  time,  and  the  statute  of  limi- 
tations then  begins  to  run.  Of  course  the  exception  that  the  claim  of 
the  plaintiff  is  barred  by  that  statute  cannot  be  maintained.  Appleton 
v.  Bascom,  3  Met.  169 ;  Hall  v.  Thayer,  12  Met.  130. 

At  the  time  when  the  defendant  petitioned  for  the  benefit  of  the  in- 
solvent law,  the  plaintiff's  cause  of  action  against  him  had  not  accrued. 
Nothing  was  due  at  that  time  from  the  insolvent  to  the  plaintiff,  and 
whether  anything  would  become  due  depended  upon  the  contingency  of 
his  being  compelled  to  pay,  and  actually  paying,  the  note,  in  whole  or 


490  THAYER   V.   DANIELS.  [CHAP.  VI. 

in  part.  If  the  plaintiff  had  taken  up  the  note,  or  made  a  payment 
upon  it,  at  any  time  before  the  making  of  the  first  dividend,  his  claim 
for  the  money  so  paid  would  have  been  provable  against  the  estate  of 
the  insolvent,  under  the  Gen.  Sts.  c.  118,  §  25,  and  would  therefore 
have  been  barred  by  the  discharge.  But  it  appears  from  the  report  that 
no  money  was  paid  by  the  plaintiff  as  surety,  and  no  cause  of  action  ac- 
crued to  him  against  the  insolvent,  until  long  after  the  first  and  only 
dividend  was  paid  from  his  estate. 

The  case  of  Mace  v.  Wells,  7  How.  272,  which  is  relied  upon  by  the 
defendant,  arose  under  the  bankrupt  act  of  1841,  a  statute  which  dif- 
fered from  our  insolvent  law,  in  allowing  sureties  and  other  parties  un- 
der a  contingent  liability  to  prove  such  contingent  liabilities  as  claims 
upon  the  estate,  and  "  when  their  debts  and  claims  become  absolute," 
to  have  them  allowed. 

The  defendants  also  insist  that  the  debt  itself  was  provable  and  was 
therefore  discharged ;  but  this  is  not  true  as  to  the  contingent  claim  of 
the  surety.  He  had  no  claim  that  was  provable  under  the  statute,  at 
the  date  of  the  discharge. 

Two  other  cases  relied  upon  by  the  defendant,  Wood  v.  Dodgson,  2 
M.  &  S.  195,  and  Vansandau  v.  Corsbie,  8  Taunt.  550,  were  decided 
under  English  statutes  which  in  express  terms  make  the  contingent 
liability  of  a  surety  a  provable  claim  against  the  bankrupt's  estate.  In 
the  first  of  these  cases  the  court  say  that  the  statute  was  intended  to 
benefit  the  sureties,  by  allowing  them  to  share  in  the  dividend  before 
the  estate  is  all  gone,  and  before  the  actual  payment  of  their  liabilities. 
Neither  of  these  decisions  is  applicable  to  a  case  under  our  insolvent 
laws.  Exceptions  overruled}- 

1  "  Under  the  English  Bankrupt  Act  of  the  last  century  only  debts  due  at  time  of 
the  act  of  bankruptcy  were  provable.  A  surety  who  had  not  paid  the  creditor  at  that 
time  had,  therefore,  no  provable  claim  against  the  principal,  and  hence  the  bankrupt's 
certificate  did  not  bar  the  surety's  right  to  recover  reimbursement  from  principal  for 
any  money  paid  by  surety  to  creditor  after  the  act  of  bankruptcy.  Chilton  v.  Whiffin, 
3  Wils.  13 ;  Goddard  v.  Vanderheyden,  3  Wils.  262,  2  Bl.  794,  s.  c. ;  Young  v.  Hock- 
ley,  3  Wils.  346  ;  Vanderheyden  v.  De  Paiba,  3  Wils.  528  ;  Heskuyson  v.  Woodbridge, 
1  Doug.  166,  n.  (55) ;  Taylor  v.  Mills,  Cowp.  525  ;  Alsop  v.  Price,  1  Doug.  160  ;  Paul 
v.  Jones,  1  T.  R.  599 ;  Ex  parte  Lloyd,  1  Rose,  4  ;  Wright  v.  Hunter,  1  East,  20.  Un- 
der Bankrupt  Act,  49  Geo.  III.  c.  121,  a  surety  had  the  right  to  prove  directly  or 
indirectly  for  any  debt  of  the  bankrupt  to  the  creditor  which  was  in  existence  at  the 
time  of  commission  issued.  If  the  creditor's  claim  was  not  a  debt  when  the  principal 
became  bankrupt,  the  surety  had  no  provable  claim  against  the  principal,  and  there- 
fore might,  on  subsequently  paying  the  creditor,  recover  from  the  bankrupt  even  after 
his  discharge.  Page  v.  Russell,  2  M.  &  Sel.  551 ;  Welsh  v.  Welsh,  4  M.  &  Sel. 
333;  Hewes  v.  Mott,  6  Taunt.  319;  M'Dougal  v.  Paton,  8  Taunt.  584;  Taylor  v. 
Young,  3  B.  &  Al.  521 ;  Newington  v.  Keeys,  4  B.  &  Al.  493  ;  Watkins  v.  Flannagan, 
1  Gl.  &  J.  199;  Watkins  v.  Flannagan,  1  Bing.  413  (affirming  s.  c.  3  B.  &  Al.  186) ; 
Freeman  v.  Burgess,  6  L.  J.  C.  P.  34."  Ames,  Cas.  Suretyship,  518,  n.  3.  Under 
the  present  English  statute,  Robson  (7th  ed.  p.  306)  says :  "  The  whole  of  the  sum  for 
which  the  surety  is  liable  must  be  discharged,  either  by  payment  in  full  or  of  part  in 
satisfaction  of  the  whole,  before  the  surety  can  claim  to  stand  in  the  creditor's  place, 
or  to  prove,"  and  criticises  Ex  parte  Delmar,  38  W.  R.  752,  where  the  surety  was  al- 
lowed to  prove  before  payment. 


SECT.   I.]  WILLIAMS  V.   FIDELITY   AND   GUARANTY  CO. 


WILLIAMS   v.    UNITED   STATES   FIDELITY   AND 
GUARANTY   COMPANY. 

SUPREME  COURT  OF  THE  UNITED  STATES,  JANUARY  18- 
FEBRUARY  23,   1915. 

[Reported  in  236  United  States,  549.] 

MR.  JUSTICE  MCREYNOLDS  delivered  the  opinion  of  the  court. 

This  cause  presents  the  following  question :  Does  j^  discharge  in 
bankruptcy  acquit  an  express  obligation  of  the  principal  to  indemnify 
his  surety  against  loss  by  reason  of  their  joint  bond  conditioned  to 
secure  his  faithful  performance  of  a  building  contract  broken  prior 
to  the  bankruptcy  when  the  surety  paid  the  consequent  damage 
thereafter  ? 

R.  PfWilliams  and  J.  B.  Carr,  as  partners,  entered  into  a  contract 
to  construct  a  building  and  gave  a  bond  to  secure  their  performance 
with  the  defendant  in  error  as  surety.  In  applying  for  the  bond  the 
partners  bound  themselves  "  to  indemnify  the  said  United  States 
Fidelity  &  Guaranty  Company  against  all  loss,  costs,  damages,  charges 
and  expenses  whatever  resulting  from  any  act,  default,  or  neglect  of 
ours,  that  said  United  States  Fidelity  &  Guaranty  Company  may  sus- 
tain or  incur  by  reason  of  its  having  executed  said  bond  or  any  con- 
tinuation thereof." 

The  partners  abandoned  the  contract  in  November,  1900 ;  the  owner 
completed  it  April  13,  1901,  and  on  May  14,  1901,  made  demand  on 
the  defendant  in  error  for  the  amount  expended  beyond  the  contract 
price.  On  refusal,  suit  was  brought,  recovery  had,  and  the  judgment 
satisfied  by  the  defendant  in  error. 

On  May  28,  1901,  the  plaintiffs  in  error  filed  voluntary  petitions  in 
bankruptcy  and  were  adjudged  bankrupt.  The  owners  of  the  building 
proved  their  claim  but  no  dividend  was  paid.  October  5,  1901,  the 
bankrupts  were  discharged.  In  August,  1911,  the  defendant  in  error 
brought  suit  against  the  plaintiffs  in  error  upon  the  written  contract 
of  indemnity. 

It  is  contended  that  the  claim  was  subject  to  two  contingencies,  one 
of  which,  the  sustaining  of  pecuniary  loss  had  not  arisen  when  the 
petition  was  filed.  The  Georgia  Court  of  Appeals  (11  Ga.  App.  635), 
so  held  and  dismissed  the  suit. 

It  is  the  purpose  of  the  Bankrupt  Act  to  convert  the  assets  of  the 
bankrupt  into  cash  for  distribution  among  creditors  and  then  to  relieve 
the  honest  debtor  from  the  weight  of  oppressive  indebtedness  and  per- 
mit him  to  start  afresh  free  from  the  obligations  and  responsibilities 
consequent  upon  business  misfortunes.  Wetmore  v.  Markoe,  196 
U.  S.  68,  77 ;  Zavelo  v.  Reeves,  227  U.  S.  625,  629 ;  Burlingham  v. 


492  WILLIAMS   V.   FIDELITY   AND   GUARANTY   CO.     [CHAP.   VI. 

Grouse,  228  U.  S.  459,  473.  And  nothing  is  better  settled  than  that 
statutes  should  be  sensibly  construed,  with  a  view  to  effectuating  the 
legislative  intent.  Lau  Ow  Bew  v.  United  States,  144  U.  S.  47,  59 ; 
In  re  Chapman,  166  U.  S.  661,  667. 

Within  the  intendment  of  the  law  provable  debts  include  all  liabil- 
ities of  the  bankrupt  founded  on  contract,  express  or  implied,  which  at 
the  time  of  the  bankruptcy  were  fixed  in  amount  or  susceptible  of 
liquidation.  Dunbar  v.  Dunbar,  190  U.  S.  340,  350;  Crawford  v. 
r.ui-ke,  IDo  U.  S.  17G.  1X7;  Grant  Shoe  Co.  v.  Laird.  212  U.  S.  445, 
448;  Zavelo  v.  Reeves,  227  U.  S.  625,  631.  It  provides  complete  pro- 
tection and  au  ample  remedy  in  behalf  of  the  surety  upon  any  such 
obligation.  He  may  pay  it  off  and  be  subrogated  to  the  rights  of  the 
creditor ;  if  the  creditor  fails  to  present  the  claim  for  allowance  against 
the  estate  he  may  prove  it ;  and  in  any  event  he  has  abundant  power 
by  resort  to  the  court  or  otherwise  to  require  application  of  its  full  pro 
rata  part  of  the  bankrupt's  estate  to  the  principal  debt.  To  the  extent 
of  such  distribution  the  obligation  of  the  bankrupt  to  the  surety  will  be 
satisfied.  Although,  unlike  the  Act  of  1867,  the  present  one  contains 
no  express  provision  permitting  proof  of  contingent  claims,  It  does  in 
substance  afford  the  surety  on  a  liability  susceptible  of  liquidation  the 
same  relief  possible  under  the  earlier  act,  i.  e.,  application  to  the  prin- 
cipal debt  of  all  dividends  declared  out  of  the  estate  (Act  of  1867, 
§§  19,  27).  And  as  the  surety  thus  either  shares  or  enjoys  an  oppor- 
tunity to  share  in  the  principal's  estate,  we  think  the  discharge  of  the 
latter  acquits  the  obligation  between  them  incident  to  the  relationship. 
Mace  v.  "Wells,  7  How.  272,  276;  Fairbanks  v.  Lambert,  137  Mass. 
373,  374;  Hayer  v.  Comstock,  115  Iowa,  187,  191  ;  Post,  admr.  v. 
Losey,  111  Ind.  74,  80 ;  Smith  v.  Wheeler,  55  App.  Div.  (N.  Y.)  170, 
171. 

It  would  be  contrary  to  the  basal  spirit  of  the  Bankrupt  Law  to  per- 
mit a  surety,  by  simply  postponing  compliance  with  his  own  promise 
in  respect  of  a  liability  until  after  bankruptcy,  to  preserve  a  right  of 
recovery  over  against  his  principal  notwithstanding  the  discharge 
would  have  extinguished  this  if  the  surety  had  promptly  performed 
as  he  agreed.  Such  an  interpretation  would  effectually  defeat  a  funda- 
mental purpose  of  the  enactment. 

The  written  indemnity  agreement  embodied  in  the  bankrupt's  ap- 
plication to  the  surety  company  for  execution  of  the  bond,  so  far  as 
its  terms  are  important  here,  but  expressed  what  otherwise  would  have 
been  implied  from  the  relationship  assumed  by  the  parties.  At  the 
time  of  the  bankruptcy  the  obligation  under  this  agreement  was  ancil- 
lary to  a  liability  arising  out  of  a  contract  estimation  of  which  was 
easy  of  establishment  by  proof.  There  was  no  uncertainty  which 
could  prevent  the  surety  from  obtaining  all  benefits  to  which  it  was 
justly  entitled  from  the  bankrupt  estate.1 

1  A  portion  of  the  opinion  is  omitted. 


SECT.  I.]  COLUMBIA   FALLS    BRICK   CO.   V.    GLIDDEN.  49' 


COLUMBIA   FALLS    BRICK   COMPANY    v.    GLIDDEN. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  JANUARY  25- 
SEPTEMBER  29,  1892. 

[Reported  in  157  Massachusetts,  175.] 

CONTRACT,  on  a  promissory  note.  The  writ  was  dated  October  18, 
1890.  The  declaration  was  as  follows  :  — 

"And  the  plaintiff  says  the  defendants,  then  doing  business  as  co- 
partners under  the  firm  name  of  Hobbs,  Glidden,  &  Co.,  made  and  de- 
livered to  the  plaintiff  their  promissory  note,  a  copy  of  which  with  the 
indorsements  thereon  is  hereto  annexed  ;  that  thereafter,  and  before 
the  maturity  of  said  note,  the  plaiptitf  indorsed  the  same  and  nego- 
tiated it  for  value  ;  that  at  the  maturity  of  said  note  the  same  was  duly 
presented  for  pa}'ment  at  the  Howard  National  Bank,  but  was  not  paid, 
whereof  the  plaintiff  had  due  notice,  that  thereafter,  to  wit,  on  the 
twenty-fifth  da}'  of  April,  1890,  the  plaintiff  was  compelled  to  pay,  and 
did  in  fact  pay,  to  the  Third  National  Bank  of  Boston,  the  holder  of 
said  note,  on  account  of  the  amount  due  thereon  from  the  defendants, 
the  sum  of  $3,646,/(J6(j,  and  that  no  part  of  the  same  has  been  paid  to 
the  plaintiff.  Wherefore  the  defendants  are  justly  indebted  to  the 
plaintiff  therefor  in  the  sura  of  $3,646/06ff,  with  interest  from  April  25, 
1890." 

The  note  was  for  $6,000,  dated  Boston,  November  23,  1889,  and 
payable  four  months  after  date  to  the  order  of  the  plaintiff.  At  the 
trial  in  the  Superior  Court,  without  a  jury,  before  MASON,  C.  J.,  there 
was  evidence  tending  to  show  that  the  defendants  gave  the  note  for  a 
good  consideration  to  the  plaintiff  corporation,  which  immediately 
thereafter  indorsed  it  for  value  to  the  Third  National  Bank  of  Boston  ; 
that  on  February  4,  1890,  the  defendants  filed  their  voluntary  petition 
in  insolvency,  and  on  February  8,  1890,  a  proposal  of  composition 
under  the  St.  of  1884,  c.  236,  which,  after  due  notice  to  the  creditors, 
was  confirmed  by  the  Court  of  Insolvency  for  the  county  of  Middlesex 
on  March  13,  1890  ;  that  the  bank  proved  its  claim  as  holder  of  the  note 
on  March  13,  1890,  and  received  a  dividend,  according  to  the  terms  of 
proposal  on  April  17,  1890,  of  $2,382.40,  which  was  indorsed  on  the 
note  ;  and  that  at  the  maturity  of  the  note  it  was  duly  protested,  notice 
being  given  to  the  plaintiff,  and  the  plaintiff  paid  the  balance  due  thereon 
of  $3,646.46  on  April  25,  1890,  and  the  defendants  received  their  dis- 
charge in  insolvency  on  April  14,  1890. 

The  plaintiff  was  a  corporation  under  the  laws  of  the  State  of  Maine, 
having  its  principal  office  therein,  and  having  besides  a  place  of  busi- 
ness in  Boston.  It  had,  before  the  date  of  the  writ,  filed  with  the 
Commissioner  for  Corporations  of  this  Commonwealth  the  power  of 
attorney  required  by  the  St.  of  1884,  c.  330,  §  1. 


494  CODING  V.  ROSCENTHAL.  •  [CHAP.  VI. 

The  judge  ruled  that  the  action  could  not  be  maintained,  and  found 
for  the  defendants  ;  and  the  plaintiff  alleged  exceptions. 

F.  T.  Benner,  for  the  plaintiff. 

S.  L.  WJiipple,  for  the  defendants. 

LATHROP,  J.  The  contract  which  the  defendants  made  in  this  case 
was  to  pay  the  note  to  the  person  who  might  be  its  legal  holder  at  the 
time  of  its  maturity.  From  this  contract  they  have  been  released  by 
their  discharge  in  insolvency,  the  note  having  been  proved  against  their 
estate  by  its  then  holder.  Pub.  Sts.  c.  155,  §  28  ;  St.  1884,  c.  236,  §  5, 
as  amended  by  St.  1885,  c.  353,  §  1,  and  by  St.  1889,  c.  406,  §  1.  The 
fact  that  after  the  maturity  of  the  note  the  paj-ee  was  obliged  to  pay 
to  its  indorsee  the  balance  due  on  the  note  after  deducting  the  dividend 
received  from  the  estate  of  the  defendants,  did  not  create  a  new  debt 
against  the  defendants,  but  was  merely  a  transfer  of  the  old  debt.  The 
promise  of  the  defendants  was  one  indivisible  promise.  See  Hunt  v. 
Taylor,  108  Mass.  508;  Cowley  v.  Dunlop,  7  T.  R.  565  ;  Buckler  v. 
Buttivant,  3  East,  72  ;  Houle  v.  Baxter,  3  East,  177. 

The  case  differs  widely  from  Thayer  v.  Daniels,  110  Mass.  345, 
where  a  suret}'  under  like  circumstances  to  those  in  the  case  at  bar  was 
allowed  to  maintain  an  action  against  the  maker  of  a  promissory  note. 
The  undertaking  of  the  maker  to  the  surety  is  one  of  indemnity  against 
an}"  loss  or  damage  which  he  may  suffer  in  consequence  of  the  failure 
of  the  maker  to  pay  the  note.  It  is  an  implied,  and  not  an  express 
contract.  The  contract  of  the  maker,  on  the  other  hand,  with  the  payee 
or  indorser,  is  an  express  contract,  from  which  in  this  case  the  makers 
have  been  released  by  their  discharge  in  insolvency. 

The  plaintiff  further  contends,  that,  being  a  foreign  corporation,  its 
claim  is  not  barred  by  the  defendants'  discharge.  Kelley  v.  Drury,  9 
Allen,  27  ;  Phoenix  National  Bank  v.  Batcheller,  151  Mass.  589.  But 
as  the  plaintiff's  right  of  action  grows  out  of  the  note,  and  as  this  has 
been  proved  against  the  defendants'  estate  in  insolvency,  these  cases 
do  not  apply.  Exceptions  overruled. 


CODING  v.   ROSCENTHAL. 
SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  OCTOBER  18,  1901. 

[Reported  in  61  Northeastern  Reporter,  222.] 

BARKER,  J.  By  the  execution  of  the  bond  of  March  29,  1898,  to 
August,  in  which  the  present  plaintiff  was  a  suret}-  for  the  present  de- 
fendant, the  latter  incurred  an  obligation  to  the  present  plaintiff  to 
reimburse  him  any  amount  which  he  might  be  compelled  as  suret}7  to 
pay  upon  the  bond.  This  obligation  was  in  force  when,  on  February 
13,  1900,  the  present  defendant's  petition  in  bankruptcy  was  filed.  It 


* 

SECT.  I.]  IN    RE   ORIENTAL   COMMERCIAL   BANK.  495 

was  an  obligation  founded  upon  an  implied  contract,  and  it  was  evi- 
denced by  an  instrument  in  writing,  and  in  one  sense  it  ,was  a  fixed 
liability.  But  no  debt  was  absolutely  owing  at  the  time  of  the  petition. 
The  obligation  was  contingent  upon  the  happening  of  a  breach  of  the 
bond  and  a  payment  by  the  surety.  The  payment  by  the  surety  was 
not  until  June  12,  1900,  and  there  seems  to  have  been  no  breach  of  the 
bond  before  that  date.  Therefore  neither  the  obligee  in  the  bond  nor 
the  surety  could  prove  in  the  bankruptcy  proceedings  a  claim  founded 
upon  the  bond,  unless  merely  contingent  claims  are  provable  under  the 
bankruptcy  act  of  1898.  The  ultimate  decision  of  that  question  is  \ci 
to  be  made  by  the  Supreme  Court  of  the  United  States.  But  in  Morgan 
v.  Wordell,  178  Mass.  350,  59  N.  E.  1037,  this  court  assumed  that  such 
claims  were  not  provable  under  the  act,  and  we  follow  that  view  in  the 
present  case.  Exceptions  sustained. 


IN  KE  ORIENTAL  COMMERCIAL  BANK. 
Ex  PARTE  EUROPEAN   BANK. 

IN  CHANCERY,  NOVEMBER  24,  1871. 

[Reported  in  Law  Reports,  7  Chancery  Appeals,  99.] 

THIS  was  an  appeal  from  a  decision  of  Vice-Chancellor  BACON,  made 
in  the  winding-up  of  the  Oriental  Commercial  Bank,  Limited,  L.  R.  12 
Eq.  501.  The  facts  were  shortly  as  follows  :  — 

On  the   12th  of  March,  1866,  Mr.  D.   Pappa,  the  manager  of  the  D,   ^  ' 
Oriental  Commercial  Bank,  wrote  to  the  manager  of  the  European  Bank  y-*^ 
as  follows  :  — 

"  We  beg  to  advise  you  that  our  Galatz  correspondent,  Mr.  E.  Con- 
stantinidi,  has  valued  upon  your  establishment  for  our  account  in  the  £.-,  f  /. 
sum  of  £15,250,  as  per  particulars  at  foot,  which  drafts  please   honor 
on  presentation  for  our  account,  on  the  usual  understanding  that  we 
furnish  you  with  funds  to  meet  the  same  at  maturity." 

In  consequence  of  this  undertaking,  Mr.  Constantinidi  drew  bills  loc/  &L*m>*  ^ 
the  amount  of  £8,800,  which  were  accepted  by  the  European  Bank,  and  £  kL^.  pt-  J{ 
handed  to  the  Oriental  Commercial  Bank  as  agents  of  the  drawer,  and 
indorsed  by  them  to  the  Agra  Bank,  who  discounted  them. 

When  the  bills  became  due  all  the  three  banks  had  stopped  payment,     /  /  Pi  ^ 
and  were  in  process  of  liquidation  ;  and  as  no  funds  had  been  provided 
to  the  European,  the  bills  were  dishonored.  / < obA^L 

The  Agra  Bank,  the  holders  of  the  bills,  proved  against  the  Euro-  " 
pean  Bank  for  £8,804  Is.  6c£,  and  received  a  first  dividend  of  3s.  4d. 
in  the  pound,  amounting  to  £1,467  6«.  lie?.  They  then  proved  against 
Oriental  Commercial  Bank,  as  the  indorsers,  for  the  balance  of  £7,336 
14s.  7c?.,  and  received  from  their  estate  a  dividend  of  13s.  in  the  pound. 
They  subsequently  received  a  further  dividend  of  6.v.  Sd.  in  the  pound 


496  IN   RE   ORIENTAL   COMMERCIAL   BANK.  [CHAP.  VI. 

from  the  European  Bank  on  their  original  proof.  The  result  was  that 
they  recovered  the  full  amount  of  their  debt ;  half  being  paid  by  the 
European,  and  half  by  the  Oriental  Commercial  Bank. 

The  Oriental  Commercial  Bank  afterwards  paid  the  European  Bank 
13s.  in  the  pound  on  the  sum  of  £1,467  6s.  lie?.,  and  2s.  in  the  pound 
on  the  whole  amount  of  the  btlls  ;  so  that  the}'  altogether  paid  15s.  in 
the  pound  on  the  whole  amount  of  the  bills,  which  was  the  amount  of 
dividend  paid  to  their  other  creditors. 

The  liquidators  of  the  European  Bank  afterwards  sought  to  be  ad- 
mitted creditors  against  the  estate  of  the  Oriental  Commercial  Bank  for 
the  sum  of  £4,402  Os.  9d.,  which  the}'  had  been  compelled  to  pay  through 
the  breach  of  the  undertaking  to  provide  them  with  funds  to  meet  the 
bills  at  maturity.  The  Vice-Chancellor  admitted  the  proof,  and  the 
liquidators  of  the  Oriental  Commercial  Bank  appealed  from  this  de- 
cision. 

Mr.  De  Gex,  Q.  C.,  Mr.  Kay,  Q.  C.,  and  Mr.  Jackson,  for  the  ap- 
pellants. 

Mr.  JEddis,  Q.  C.,  and  Mr.  Graham  Hastings,  for  the  European 
Bank. 

Sir  G.  MELLISH,  L.  J.,  after  shortly  stating  the  facts  of  the  case, 
continued  :  — 

It  is  quite  obvious  that  if  this  proof  is  allowed  the  Oriental  Commer- 
cial  Bank  will  pay  a  double  dividend  on  the  same  debt.  It  appears  to 
me  clearly  that  it  is  substantially  the  same  debt ;  because  if  all  parties 
had  been  solvent,  whatever  sums  the  Oriental  Commercial  Bank  might 
have  paid  to  the  Agra  Bank,  although  they  would  have  paid  it,  no  doubt, 
for  the  purpose  of  performing  the  contract  they  had  entered  into  by 
their  indorsement,  yet,  substantially,  whatever  sums  they  might  have 
paid  to  the  Agra  Bank  would  have  gone  in  reduction  of  the  sum  which 
the  Oriental  Commercial  Bank  had  promised  to  pay  to  the  European 
Bank.  In  that  case  the  Oriental  Commercial  Bank  could  never  have 
been  called  upon  to  pay  these  bills  twice  over.  It  would  have  made  no 
difference  that  they  had  entered  into  two  contracts  with  two  separate 
parties  that  they  would  pay  the  bills  —  namely,  with  the  European 
Bank  as  acceptors,  and  with  the  Agra  Bank  as  holders.  It  is  clear  that 
they  would  have  performed  both  contracts  by  paying  the  bills  once,  be- 
cause they  had  guaranteed  the  acceptors  ;  and,  in  fact,  the  acceptance 
having  been  an  acceptance  for  their  use,  their  payment  to  the  Agra 
Bank  would,  in  substance  and  in  point  of  law,  have  been  a  payment  by 
the  acceptors. 

Then  the  question  is,  whether,  the  parties  being  insolvent,  the  Ori- 
ental Commercial  Bank  can  be  liable  to  pay  two  dividends  on  the  same 
debt?  It  has  been  the  law  for  a  great  number  of  years  with  reference 
to  proofs  in  bankruptcy,  that  if  an  acceptor  accepts  bills  for  the  ac- 
commodation of  the  drawer,  and  the  drawer  enters  into  a  contract, 
either  express  or  implied  (and  I  do  not  think  there  is  any  difference 
between  the  two),  that  he  will  provide  for  the  bills  when  they  become 


SECT.  I.]       EX  PARTE  NEWTON.   IN  EE  BUNYAED.          497 

due,  and  then  the  drawer  becomes  bankrupt,  there  cannot  be  a  double 
proof  against  his  estate,  namely,  one  proof  by  the  holder  pf  the  bill, 
and  the  other  proof  by  the  acceptor  of  the  bill  on  the  contract  of  in- 
demnit}-.  Then  the  real  question  before  us  is  this :  Does  it  make  any 
distinction  that  the  Oriental  Commercial  Bank  were  not  drawers,  but 
entered  into  the  contract  with  the  acceptors,  and  afterwards  became 
liable  for  the  bills  as  indorsers?  It  appears  to  me  that  that  ought  not 
to  make  any  distinction,  although  I  do  not  find  any  precise  decision 
upon  the  point.  The  case  of  Rigb}'  v.  Macnamara,  2  Cox,  415,  tends 
to  show  that  this  rule  against  double  proof  applies  in  the  Court  of 
Chancery  as  well  as  in  the  Court  of  Bankruptc}7,  and  therefore  would 
applj-  equally  where  companies  are  being  wound  up.  It  seems  to  me 
that  the  principle  is  a  perfectly  sound  one.  Authorities  have  been 
cited  to  show  that  there  cannot  be  double  proof  against  joint  and  sepa- 
rate estates.  That  is  really  carrying  the  same  principle  still  further,  for 
in  that  case  the  proof  is  not  twice  against  the  same  estate,  but  against 
different  estates  though  belonging  to  the  same  person.  As  to  that  ap- 
plication of  the  principle,  some  judges  have  said  that  it  should  not  be 
carried  an}7  further.  But  the  principle  itself, —  that  an  insolvent  estate, 
whether  wound  up  in  Chancery  or  in  Bankruptcy,  ought  not  to  pay  two 
dividends  in  respect  of  the  same  debt  —  appears  to  me  to  be  a  perfectly 
sound  principle.  If  it  were  not  so,  a  creditor  could  always  manage,  by 
getting  his  debtor  to  enter  into  several  distinct  contracts  with  different 
people  for  the  same  debt,  to  obtain  higher  dividends  than  the  other 
creditors,  and  perhaps  get  his  debt  paid  in  full.  I  apprehend  that  is 
what  the  law  does  not  allow ;  the  true  principal  is,  that  there  is  only  to 
be  one  dividend  in  respect  of  what  is  in  substance  the  same  debt,  al- 
though there  may  be  two  separate  contracts.  Therefore,  upon  the  whole, 
with  great  respect  to  the  Vice-Chancellor,  I  am  of  opinion  that  this 
proof  should  not  be  allowed. 

Sir  W.  M.  JAMES,  L.  J.     I  entirely  concur.1 


Ex   PARTE   NEWTON.     IN   RE   BUNYARD. 
COURT  OF  APPEAL,  JUNE  24-DECEMBER  9,   1880. 

[Reported  in  16  Chancery  Division,  330.] 

COTTON,  L.  J.  I  have  now  to  deliver  the  judgment  of  Lord  Justice 
BAGGALLAY  and  myself,  in  which  I  believe  the  late  Lord  Justice 
THESIGER  would  have  agreed. 

Each  of  these  appeals  raised  the  same  question,  namely,  whether  the 

1  Other  illustrations  of  the  rule  against  double  proof  may  be  found  in  Kx  parte 
Macredie,  8  Ch.  App.  535  ;  Ex  parte  Mann,  5  Ch.  D.  367 ;  Ex  parte  Murrell,  38  L.  T 
N.  a.  363. 


498  EX  PARTE  NEWTON.   IN  RE  BUNYARD.     [CHAP.  VI. 

holder  of  a  bill  of  exchange  taken  from  the  drawer  as  securit}*  for  a 
sum  less  than  the  amount  of  the  bill  is  entitled,  as  against  the  estate  of 
the  bankrupt,  who  had  accepted  it  for  the  accommodation  of  the  drawer, 
"  "to  prove  only  for  the  amount  due  to  him  (the  holder)  or  for  the  amount 
of  the  bill,  with  a  restriction  that  he  shall  not  receive  dividends  on  his 
proof  to  an  amount  exceeding  the  sum  due  to  him  on  his  security. 
It  was  conceded  that,  if  the  bill  had  been  accepted  for  value,  the  holder 
would  have  been  entitled  to  prove  for  the  larger  amount.  But  it  was 
urged  on  behalf  of  the  respondent  that  the  fact  of  the  acceptance  being 
for  the  accommodation  of  the  drawer  makes  a  difference.  It  was  said, 
and  truly,  that  a  man  who  has  taken  a  bill  from  the  drawer  as  security 
only  will  hold  for  the  drawer  any  sum  recovered  from  the  acceptor 
bej'ond  the  amount  due  on  his  securit}*,  and  that  when  the  bill  has  been 
accepted  for  the  accommodation  of  the  drawer,  he,  the  drawer,  would 
be  liable  to  repay  to  the  acceptor  any  part  of  the  sum  recovered  from 
him,  which  may  be  handed  to  the  drawer  by  the  holder  of  the  bill. 
But  the  acceptor  has  put  it  in  the  power  of  the  drawer  to  make  the  bill 
in  the  hands  of  a  holder  for  value  available  against  the  acceptor  for 
its  full  amount,  and,  although  the  holder  may  have  taken  it  as  security 
for  a  sum  less  than  the  amount  of  the  bill,  we  are  of  opinion  that 
such  a  holder  is  entitled  to  make  the  bill  available  against  the  ac- 
.  ,^^;  ceptor  in  the  way  which  will  best  produce  the  sum  due  to  him,  and 
that,  in  the  event  of  bankruptcy,  he  is  entitled  to  prove  against  the 
acceptor's  estate  for  the  full  amount  of  the  bill.  It  was  argued  that,  if 
the  acceptor  had  not  become  bankrupt,  judgment  in  an  action  against 
him  on  the  bill  would  be  confined  to  the  amount  due  on  the  security 
thereof  from  the  drawer.  But,  if  the  acceptor  is  solvent,  a  judgment 
against  him  will  realize  the  full  amount  for  which  it  is  obtained,  and,  even 
if  he  is  not  solvent,  the  amount  to  be  recovered  on  the  judgment  will  (to 
an  amount  not  exceeding  the  sum  for  which  the  judgment  is  recovered)  be 
limited  only  by  the  value  of  his  estate  which  can  be  realized  under  the 
judgment.  In  case  this  is  insufficient  to  pay  the  debt  to  the  holder  of  the 
bill,  the  amount  which  he  will  recover  will  not  be  increased  b}-  giving  him 
judgment  for  a  larger  sum.  It  was,  however,  contended  that  there  is 
authorit}'  in  favor  of  the  respondent,  andExparte  Bloxham,  5Ves.448, 
was  referred  to.  The  decision  of  Lord  Rosslyn  there  reported  is  in  favor 
of  the  more  limited  proof.  But  the  order  was  afterwards  (6  Ves.  600)  dis- 
charged, and  an  order  made  giving  the  bill-holder  a  right  to  prove  for  the 
full  amount  of  the  bill.  This  case,  even  if  it  is  not  (as  we  think  it  is)  an 
authority  in  favor  of  the  appellants,  cannot  be  regarded  as  an  authority 
against  them.  We  are  of  opinion,  therefore,  that  the  appellants  are 
entitled  to  prove  for  the  full  amount  of  the  bills,  with  a  restriction  that 
they  are  not  to  receive  dividends  be}'ond  the  amounts  due  to  them.1 

1  Ex  parte  Kelty,  1  Low.  394  ;  Bailey  v.  Nichols,  2  B.  K.  478,  ace. 


SECT.  I.J       IN  RE  SOUTHER.   EX  PARTE  TALCOTT.          499 


IN  RE  SOUTHER.     Ex  PARTE  TALCOTT. 

DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS, 
MARCH,   1874. 


[Reported  in  2  Lowell,  320.1 

L     *  J  fl.CJ-1-^'  •'    ^^r  -'   '    <« 

THIS  was  a  question  upon  evidence  certified  by  the  register,   con-  ^-^  ^"^ 
cerning  the  debt  offered  for  proof  by  Frederic  Talcott,  and  called  for  ¥i*>-*-4  "* 
a  decision  whether  the  amount  paid  by  an  indorser  of  a  note,  after  the  oJfy/v  • 
bankruptcy  of  the  maker,  and  after  an  affidavit  in  due  form  had  been  $*&  J-t 
made  by  Talcott  for  proving  the  debt,  but  before  the  first  meeting  of   / 
the  creditors,  and  therefore  before  the  debt  could  be  admitted  to  proof, 
should  be  deducted  from  the  debt  as  a  payment  pro  tanto.     The  case 
was  not  argued.  C*cjt*tsrtsi-  t 

LOWELL,  J.     The  general  rule  undoubted!}7  is,  that  the  holder  of  a 
note  may  prove  against  all  the  parties  for  the  full  amount,  and  receive     •  •  L 
dividends  from   all   until  he  has  obtained  the  whole  of  his  debt  with      '%        y  u 
interest.     It  is  likewise  the  general  rule,  that  what  he  has  received 

""'  t  -.    >•_  U      f    £. 


from  one  party,  or  from  dividends  in  bankruptcy  of  one  party,  to  the 

note,   are    payments  which    he   must  give  credit  for  if  he   afterwards 

proves  against  others.    Sohier  v.  Loring,  6  Gush..  537  ;  Ex  parte  Wild-  />*^&/  07+ 

man,  1  Atk.  109  \~~Ex  parte  The  Royal  Bank  of  Scotland,  2  Rose,  197  ; 


Ex  parte  Taylor,  1  DeGex  &  J.  302.    j_am  of  opinion  that  this  latter 

rule  must  be  confined  to  cases  in  which  the  payment  has  been  made 

the  person  primarily  liable  on  the  note  or  bill.     The  two  cases  last  ^ 

above  cited  cover  the  whole  ground  of  this  inquiry.     In  the  former,  it  ' 

. 
was  held  that  such  credit  must  be  given  for  dividends  received  after  a 

claim  had  been  made  in  bankruptcy,  but  before  the  debt  was  actually/.// 
and  formally  proved  ;  and  in  the  latter,  that  when  such  payments  had 
been  made  by  the  drawer  of  a  bill  of  exchange,  and  the  proof  was 
offered  against  the  acceptor,  still  the  credits  must  be  given.  One  of 
the  learned  justices,  however,  in  giving  judgment,  reserved  his  opinion 
whether  the  rule  would  apply  if  the  holder  offered  his  proof  as  a  trustee 
for  the  drawer,  or  for  the  estate  of  the  drawer.  The  theory  of  this  de- 
cision is,  that  no  creditor  can  prove  for  more  than  his  actual  debt,  as  it 
exists  at  the  time  of  proof,  without  obtaining  an  undue  advantage  over 
other  creditors.  The  answer  attempted  to  be  maintained  by  the  cred- 
itor in  that  case,  was,  that  a  holder  may  sue  for  the  whole  debt  at  law 
against  the  party  primarily  liable,  and  hold  the  money  for  whom  it  may 
concern.  For  this  position  he  cited  Jones  v.  Broadhurst,  9  C.  B.  173, 
then  recently  decided.  The  court  of  appeal  in  bankruptcj'  expressed 
doubts  whether  Jones  v.  Broadhurst  stated  the  true  rule  at  law,1  and 

1  "  There  is  no  foundation  for  this  doubt.  The  cases  uniformly  support  the  doc- 
trine of  Jones  v.  Broadhurst,  Randall  v.  Moore,  12  C.  B.  261  ;  Williams  v.  James,  19 
L.  J.  Q.  B.  445  ;  Agra  Bank  v.  Leighton,  L.  R.  2  Eq.  56  ;  Woodward  v.  Pell,  L.  R. 
4  Q.  B.  55  ;  Thornton  v.  Maynard,  L.  R.  10  C.  P.  695  ;  Andrews  v.  Toronto  Bank,  15 


*!/ 


500  IN   RE   SOUTHER.      EX   PARTE   TALCOTT.  [CHAP.   VI. 

decided  that  the  rule  in  bankruptcy,  at  all  events,  was  well  settled 
against  it,  unless,  perhaps,  the  holder  proved  that  he  was  acting  as 
trustee  for  some  one  whose  liability  was  subsequent  to  that  of  the 
bankrupt. 

It  seems  to  me,  however,  that  the  argument  in  favor  of  the  proof  in 
full  was  sound.  The  better  opinion  at  common  law  is,  that  payment 
by  a  drawer  or  indorser  does  not  exonerate  the  acceptor  or  maker,  un- 
less the  promise  of  the  latter  was  for  the  accommodation  of  the  former, 
or  there  is  some  other  equit}7  which  makes  the  note  or  bill  the  debt  of 
the  party  who  lias  made  the  pa3'inent,  or  unless  he  has  made  it  at  the 
request  or  for  the  benefit  of  the  acceptor  or  maker.  Byles  on  Bills 
(10th  ed.),  221,  and  cases  there  cited.  If  this  be  not  the  rule  at  law, 
still  I  consider  it  to  be  so  in  bankruptcy.  The  statute,  section  19,  adopt- 
ing the  equities  of  the  case,  declares  that  if  a  suretj',  or  other  person 
liable  for  a  bankrupt  (and  this  undoubtedly  includes  indorsers),  pays 
or  satisfies  the  debt,  or  if  he  remains  liable  for  the  whole,  or  any  part 
of  it,  he  may  prove  it  in  bankruptcy,  or  require  the  creditor  to  prove 
it,  in  order  that  he  may  have  the  benefit  of  the  dividends.  This  law 
does  not  expressly  meet  the  present  case,  because  the  indorsers  here 
have  neither  satisfied  the  debt,  nor  do  they  remain  liable  to  pay  it,  but 
they  have  taken  an  intermediate  course,  by  paying  a  part  for  a  full  re- 
lease of  their  own  liability.  Under  these  circumstances,  in  the  absence 
of  any  stipulation  one  wa}'  or  another  about  the  maker  of  the  note,  who 
was  already  a  bankrupt,  the  law  will  imply  that  the  holder  is  to  prove 
the  whole  debt ;  and,  if  the  dividends  are  more  than  enough  to  pay  him 
in  full,  after  crediting  to  the  surety  what  he  has  received  from  him,  the 
creditor  will  hold  the  surplus  for  the  benefit  of  the  surety.  This,  though 
not  within  the  exact  language  of  section  19,  is  fully  within  its  spirit. 
It  is  not,  however,  as  a  construction  of  that  section  that  I  find  the  law, 
but  merely  that  the  section  recognizes  a  familiar  equity,  and  takes  for 
granted  that  a  creditor  may  prove  the  debt  notwithstanding  payment 
in  whole  or  in  part  by  a  surety,  because  he  in  fact  proves  as  the  trustee 
of  the  surety.  The  payment  made  by  the  indorser  after  the  maker  of 
the  note  was  a  bankrupt,  cannot  be  proved  by  the  surety  as  money  paid, 
unless  it  comes  precisely  within  section  19,  because  it  had  not  been 
paid  at  the  time  of  the  bankruptc}'.  It  must  either  be  provable  as  part 
of  the  note  in  the  hands  of  the  holder,  and  for  the  benefit  of  the  in- 
dorser, or  not  provable  at  all,  and  in  the  latter  case  it  would  not  be 

Ont.  App.  648  ;  Bird  v.  Louisiana  Bank,  93  U.  S.  96  (St.  of  La.  not  a  bar) ;  -Davis 
v.  McConnell,  3  McL.  391  ;  Granite  Bank  v.  Fitch,  145  Mass.  567  ;  Mechanics'  Bank  v. 
Hazen,  13  Johns.  353 ;  Madison  Bank  v.  Pierce,  137  N.  Y.  444 ;  Concord  Bank  v. 
French,  65  How.  Pr.  317  ;  Logan  v.  Cassell,  88  Pa.  288;  Bank  of  Amiens  v.  Senior,  11 
R.  I.  376. 

"  If  the  indorser  has  paid  a  part  of  the  amount  due  on  bill  or  note  the  holder  may 
collect  in  full,  and  hold  as  a  trustee  for  the  indorser  pro  tanto.  Johnson  v.  Kennion, 
2  Wils.  262 ;  Walwyn  v.  St.  Quintin,  1  B.  &  P.  652 ;  Reid  v.  Furnival,  1  Cr.  &  M.  338 ; 
North  Bank  v.  Hamlin,  125  Mass.  506;  Madison  Bank  v.  Pierce,  137  N.  Y.  444;  Ward 
v.  Tyler,  52  Pa.  393."  Ames  Cas.  Suretyship,  427. 


SECT.  I.]  IN   RE    SOUTHER.      EX    PARTE    TALCOTT.  501 

barred  by  the  discharge.  This  was  one  of  the  motives  for  the  enact- 
ment that  the  surety  may  compel  the  creditor  to  prove,  and  it  takes  for 
granted,  as  I  have  said,  that  the  creditor  might  prove  voluntarily.  The 
case  of  Jones  u.  Broadhurst,  and  those  which  follow  it  on  the  one  side, 
or  differ  from  it  on  the  other,  deal  merely  with  the  fact,  or  the  pre- 
sumption, whether  or  not  the  payment  is  intended  to  discharge  the  debt 
of  the  principal  debtor;  if  not,  the  right  of  action  remains  good.  The 
fsu'.t  in  this  case  is,  that  the  surety  gave  a  certain  sum  for  what  is" 
equivalent  to  a  covenant  not  to  sue  him,  and  it  is  not  for  the  bankrupt 
"to  "say"  that  his  debt  is  thereby  paid,  when  he  has  not  furnished  the 
means  to  pay  it.  Proof  admitted  in  fall.1 

1  "  Ex  parte  De  Tastet,  1  Rose,  10;  In  re  Ellerhorst,  5  N.  B.  R.  144;  Ex  parts 
Harris,  2  Low.  568 ;  Re  Pulsifer,  9  Biss.  487,  490,  14  Fed.  Rep.  247 ;  s.  c.  (semble) ; 
Dearth  v.  Hide  Bank,  100  Mass.  540  (semble) ;  Ames  v.  Huse,  55  Mo.  App.  422,  ace. 

"Cooper  v.  Pepys,  1  Atk.  105;  Ex  parte  Leers,  6  Ves.  644;  Ex  parte  Worrall, 
1  Cox,  309 ;  Ex  parte  Taylor,  1  DeG.  &  J.  302  ;  In  re  Oriental  Bank,  L.  R.  6  Eq.  582 ; 
Re  Blackhurne,  9  Morrell,  249,  252  (semble)  contra."  Ames,  Cas.  Suretyship,  428. 

In  Re  Swift,  106  Fed.  Rep.  65,  70,  LOWELL,  J.,  said  :  "The  proving  creditor  seeks 
to  review  the  decision  of  the  referee  in  deducting  from  the  amount  proved  against  the 
separate  estate  the  amount  of  the  dividend  declared  on  the  joint  estate.  That  a  cred- 
itor may  prove  for  the  full  amount  of  a  note  against  both  its  maker  and  indorser,  and 
may  collect  from  both  estates  dividends  on  such  proof  until  his  whole  debt  is  satisfied, 
is  settled  law.  Where,  however,  proof  against  the  estate  of  the  indorser  is  made  after 
part  payment  by  the  maker,  the  proof  must  be  limited  to  the  balance  due  on  the  note 
after  deducting  the  part  payment.  And  it  appears  to  be  settled  that  a  dividend  from 
the  estate  of  the  maker,  declared  in  favor  of  the  creditor,  and  payable  before  proof  is 
made  against  the  estate  of  the  indorser,  is  the  equivalent  of  actual  part  payment.  In 
this  case,  proof  against  the  estate  of  the  maker  was  made  after  the  declaration  of  the 
first  dividend.  By  section  65  c,  the  creditor  making  proof  after  the  declaration  of  the 
first  dividend  is  entitled  to  be  paid  'dividends  equal  in  amount  to  those  already  re- 
ceived by  the  other  creditors,  if  the  estate  equal  so  much  before  such  other  creditors 
are  paid  any  further  dividends.'  This  right  of  the  creditor  to  a  preference  in  future 
dividends  does  not  seem  to  me  equivalent  to  a  declaration  of  a  dividend  in  his  favor,  or 
to  actual  part  payment  of  the  note.  In  re  Hicks,  Fed.  Cas.  No.  6,456  ;  In  re  Hamilton 
(D.  C.),  1  Fed.  800;  In  re  Meyer,  78  Wis.  615,  626,  48  N.  W.  55,  11  L.  R.  A.  841  ; 
Ex  parte  Todd,  2  Rose,  202,  note.  The  estate  might  not  be  large  enough  to  pay  to 
this  creditor  the  rate  declared  in  favor  of  the  other  creditors.  Considering  the  situa- 
tion as  shown  in  the  finding  of  the  referee  and  in  the  subsequent  stipulation,  I  think 
the  creditor  was  entitled  to  prove  for  the  whole  amount  of  the  note  against  the  estate 
of  the  indorser.  The  judgment  of  the  referee  is  reversed,  in  so  far  as  it  provides  for 
a  diminution  of  the  proof  presented  against  the  separate  estate  of  E.  C.  Hodges;  in 
other  respects  it  is  affirmed." 

See  also  Swarts  v.  Fourth  Nat.  Bank,  117  Fed.  1  (C.  C.  A.)  ;  Re  Noyes,  127  Fed. 
286  (C.  C.  A.). 


502  KOGER   WILLIAMS   NATIONAL   BANK   V.   HALL.       [CHAP.  VI. 


ROGER  WILLIAMS   NATIONAL   BANK   v.    FREDERICK 

S.  HALL. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  OCTOBER  24- 
NOVEMBER,  28,  1893. 

[Reported  in  160  Massachusetts,  171.] 

HOLMES,  J.  The  question  in  this  case  is  whether  the  holder  of  a 
partnership  note  made  payable  to  one  partner  and  indorsed  by  him  to 
the  holder  can  prove  it  in  insolvency  against  the  estates  both  of  the 
firm  and  of  the  indorsing  partner  before  any  dividend  is  declared  on 
either.  The  statute  is  silent.  Intimations  in  favor  of  the  right  of 
double  proof  are  to  be  found  in  Borden  v.  Cuyler,  10  Cush.  476, 
477,  and  in  Mead  v.  National  Bank  of  Fayetteville,  6  Blatchf.  C.  C. 
180,  and  in  the  decisions  in  I)i  re  Farnum,  6  Law  Rep.  21  (b^y  Judge 
Sprague),  and  Ex  parte  Nason,  70  Maine,  363.  The  United  States 
Bankrupt  Act  of  1867,  §  21,  U.  S.  Rev.  Sts.  §  5074,  is  construed  to 
allow  the  right  in  terms.  Emery  v.  Canal  National  Bank,  3  Cliff.  507, 
collecting  the  cases,  and  repeating  some  of  the  general  arguments  at 
length.  Formerty  an  arbitrary  rule  was  worked  out  by  degrees  in 
England  that  the  creditor  must  elect.  Ex  parte  Rowlandson,  3  P. 
Wms.  405;  Ex  parte  Moult,  Mont.  321,  Mont.  &  Bligh,  28,  1  Deac. 
&  Ch.  44,  2  Deac.  &  Ch.  419  ;  Goldsmid  v.  Cazenove,  7  H.  L.  Gas. 
785,  805.  But  this  'rule,  after  being  disapproved  by  the  most  emi- 
nent judges  (Ex  parte  Bevan,  9  Ves.  223,  225,  10  Ves.  107,  109; 
Story,  Part.  (7th  ed.)  §§  384-386  ;  Eden,  Bankruptcy  (2d  ed.),  181), 
has  been  done  away  with  by  statute  1  in  cases  like  the  present.  Ex 
parte  Honey,  L.  R.  7  Ch.  178.  In  view  of  the  modern  decisions  and 
the  general  agreement  of  opinion,  we  think  it  unnecessary  to  argue 
elaborately  for  the  right  of  a  creditor  who  has  required  two  contracts 
binding  two  distinct  estates  to  insist  upon  both.  See  further  Fuller  v. 
Hooper,  3  Gray,  334,  342  ;  Vanuxem  v.  Burr,  151  Mass.  386,  3£i8, 
389  ;  Turner  v.  Whitmore,  63  Maine,  526,  528  ;  and  Miller's  River 
National  Bank  v.  Jefferson,  158  Mass.  Ill,  113. 

Decree  of  court  of  insolvency  affirmed. 

W.  A.  Morgan  <fc  F.  L.  Tinkham,  for  the  appellants. 

E.  H.  Bennett,  for  the  appellee. 

1  32  &  33  Viet.  c.  7,  §  37. 


SECT.  I.]  EX   PARTE   HOUGHTON.  503 

Ex  PARTE   HOUGHTON. 
DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS,  MARCH,  1871. 

[Reported  in  I  Lowell,  554.] 

THE  petitioners  hold  a  long  lease  of  a  shop  on  Washington  Street, 
Boston,  and  on  the  thirtieth  day  of  May,  1868,  they  underlet  the  shop 
to  James  Fortune,  the  bankrupt,  for  eight  years  and  ten  months  from 
the  first  day  of  the  next  June,  being  two  days  less  than  their  own  term, 
at  a  rent  which  was  payable  rnonthlj-  and  very  largely  in  advance  of 
what  they  paid.  Fortune  covenanted  to  pay  the  rent,  and  all  taxes 
which  should  be  assessed  on  said  premises  during  said  term,  to  make 
no  alterations  without  the  written  consent  of  the  petitioners,  and  to 
keep  the  premises  in  as  good  order  as  at  the  beginning  of  the  term, 
reasonable  use,  &c.,  excepted.  The  petition  in  bankruptcy  was  filed 
June  9,  1869.  The  petitioners  alleged  a  breach  of  all  these  covenants, 
and  have  proved  for  all  arrears  of  rent,  without  objection.  They  took 
possession  of  the  premises  early  in  September,  1869,  on  the  day  on 
which  the}'  saw  a  notice  in  the  newspaper  of  the  adjudication  in  bank- 
ruptcy, and  say  that  they  found  the  shop  injured  by  alterations  to 
the  extent  of  five  hundred  dollars.  They  have  since  relet  the  shop 
at  a  reduced  rent,  and  they  asked  to  have  the  damages  suffered  by 
them  in  the  reletting  of  the  estate  as  well  as  the  damage  bj'  the  altera- 
tions assessed  by  the  court  or  by  a  juiy.  They  also  offered  to  prove 
as  preferred  debts  the  city  and  State  taxes  assessed  on  the  premises 
by  the  city  of  Boston  for  the  years  1868  and  1869,  which  were  assessed 
to  the  owner  of  the  estate,  and  paid  by  the  petitioners  as  required  by 
the  terms  of  their  lease  from  the  owner. 

At  a  hearing  before  the  court  the  facts  above  mentioned  were  proved, 
and  it  further  appeared  that  the  lease  contained  this  clause:  "  Provided 
also,  and  these  presents  are  upon  condition,  that  if  the  lessee  or  his 
representatives  or  assigns  do  or  shall  neglect  or  fail  to  perform  and 
observe  any  or  either  of  the  covenants  ...  or  if  the  lessee  shall  be 
declared  bankrupt  or  insolvent  according  to  law,  or  if  any  assignment 
shall  be  made  of  his  property  for  the  benefit  of  creditors,  then,  and  in 
either  of  the  said  cases,  the  lessors,  or  those  having  their  estate  in  said 
premises  may,  immediately,  or  at  an}-  time  thereafter,  and  whilst  such 
neglect  or  default  continues,  and  without  further  notice  or  demand,  enter 
into  and  upon  the  said  premises,  or  any  part  thereof,  in  the  name  of 
the  whole,  and  repossess  the  same,  as  of  their  former  estate,  and  expel 
the  lessee,  &c.  .  .  .  without  prejudice  to  any  remedies  which  might 
otherwise  be  used  for  arrears  of  rent  or  preceding  breach  of  covenant, 
and  that  upon  entry,  as  aforesaid,  the  said  term  shall  cease  and  be 
ended." 

JS.  Avery,  for  the  petitioners. 

B.  F,  Jirooks,  for  the  assignees. 


504  EX   PARTE   HOUGHTON.  [CHAP.  VI. 

LOWELL,  J.  The  most  important  question  is,  whether  the  petitioners 
can  prove  for  the  damages  suffered  by  them  in  reletting  the  premises. 
The  earlier  law  of  England,  which  we  have  adopted  in  this  country, 
was  that  the  assignees  of  a  bankrupt  have  a  reasonable  time  to  elect 
whether  they  will  assume  a  lease  which  they  find  in  his  possession,  and 
if  the}"  do  not  take  it  the  bankrupt  retains  the  term  on  precisely  the 
same  footing  as  before,  with  the  right  to  occupy,  and  the  obligation  to 
pay  rent ;  if  they  do  take  it  he  is  released  as  in  all  other  cases  of  valid 
assignment,  from  all  liability  excepting  on  his  covenants,  and  from 
these  he  is  not  discharged  in  any  event.  Henley  on  Bankruptcy 
(3d  ed.),  237  ;  Auriol  v.  Mills,  4  T.  R.  94  ;  Copeland"  v.  Stevens,  1  B. 
&  A.  593  ;  Tuck  v.  Fyson,  6  Bing,  321  ;  Robson  on  Bankruptcy,  328. 
This  rule  was  long  since  modified  in  England  by  statutes  49  Geo.  III. 
ch.  121,  §  19,  and  6  Geo.  IV.  ch.  16,  §  75,  by  which  the  bankrupt  was 
released  from  his  covenants  if  either  the  assignee  accepted  the  lease,  or 
the  bankrupt  himself  surrendered  it  to  his  lessor  within  fourteen  days 
after  notice  that  the  assignee  had  declined.  This  remained  the  law  by 
re-enactment  in  the  several  divisions  of  the  bankrupt  acts  down  to  the 
latest  in  1869,  32  &  33  Viet,  ch,  71,  §  23,  which  authorizes  an  assignee 
to  disclaim  any  onerous  property  or  contract,  and  deprives  the  bank- 
rupt of  all  interest  therein  whether  the  assignee  disclaims  or  not,  and 
gives  an}'  person  "  injured  by  the  operation  of  this  section  "  the  right 
to  prove  the  amount  of  his  injury  as  a  debt  under  the  bankruptcy. 
This  is  the  first  legislative  recognition  that  I  have  found  of  any  debt  of 
the  character  now  sought  to  be  proved,  and  the  petitioners  have  failed 
to  discover  any  judicial  determination  of  a  similar  right.  The  Amer- 
ican authorities  follow  the  line  of  reasoning  and  decision  of  the  earlier 
English  cases,  and  hold  that  a  lessor  has  no  provable  debt,  contingent 
or  otherwise,  for  the  reason  that  rent  accrues  from  time  to  time,  and 
is  not  and  cannot  be  due  in  solido  beforehand,  since  it  depends  on 
occupation  from  time  to  time. 

Leaving  out  of  view  for  the  moment  the  peculiar  clause  of  this  lease 
relating  to  bankruptcy,  which  the  petitioners  say  they  have  never  acted 
on,  and  overlooking  the  fact  of  their  re-entry,  how  did  the  bankruptcy 
affect  this  lease  ?  The  assignees  did  not  assume  the  lease,  and  conse- 
quently the  original  parties  stand  simply  as  landlord  and  tenant.  If 
the  bankrupt  can  find  means  to  pa}-  his  rent,  or  can  find  a  purchaser 
for  the  lease,  no  one  is  injured  ;  if  he  cannot,  the  lessors  ma}"  re-enter. 
Where  are  the  unliquidated  damages  to  be  assessed  against  the  estate 
of  the  bankrupt  ?  In  the  very  useful  and  accurate  work  of  Mr.  Taylor 
on  Landlord  and  Tenant,  §  457,  it  is  suggested  that  the  -question 
whether  future  rent  can  be  proved  as  a  debt  in  bankruptcy  must  de- 
pend on  the  particular  language  of  the  several  statutes,  and  that  under 
the  broad  authority  to  prove  contingent  debts  contained  in  some  of 
these  acts,  such  proof  might,  perhaps,  be  made.  The  latter  part  of  the 
suggestion  is  not  supported  by  any  decision,  and  seems  rather  a  proph- 
ecy of  the  English  "bankruptcy  act"  of  1869  than  a  gloss  upon  any 


SECT.  I.]  EX   PARTE    HOUGHTOX.  505 

which  had  preceded  it.  The  United  States  act  of  1841  gave  very  full 
power  to  prove  contingent  debts  and  even  to  have  them  valued,  but 
future  rent  was  held  not  to  be  within  its  terms.  Bosler  v.  Kuhu, 
8  Watts  &  S.  183;  Savory  v.  Stocking,  4  Cush.  607.  There  is,  no 
doubt,  strong  reason  for  passing  such  a  law,  but  the  existing  law  does 
not  cover  the  case.  It  is  not  uncommon  now  for  leases  to  contain  a 
provision  that  in  case  of  breach  the  lessor  may  enter  and  relet  the  es- 
tate at  the  expense  and  risk  of  the  lessee  and  charge  him  with  the 
deficiency.  Under  such  a  clause  a  lessor  might  well  have  the  right  to 
prove  for  the  full  amount  of  the  damages  which  should  be  ascertained 
by  such  reletting.  Such  a  case  would  be  analogous  to  that  arising 
under  the  bankruptcy  of  the  Metallic  Compression  Casting  Company, 
which  had  contracted  in  writing  with  a  skilled  workman  to  employ  him 
for  a  fixed  time  at  a  fixed  rate  of  wages,  and  had  discharged  him  when 
they  stopped  payment.  I  ruled  to  the  jury  that  the  workman  had  his 
election  to  sue  for  his  wages  from  time  to  time,  or  to  proceed  at  once 
for  unliquidated  damages,  and  when  the  company  were  in  bankruptcy 
might  have  his  damages  assessed  under  §  19,  and  proof  for  the  amount 
of  the  verdict :  a  ruling  which  was  excepted  to,  but  the  case  was  not 
carried  further,  and  I  see  no  occasion  to  doubt  the  soundness  of  the 
instruction.  But  rent  stands  on  a  very  different  foundation,  because 
there  is  no  right  of  action  at  the  time  of  the  bankruptcy,  excepting  for 
the  arrears.1 

There  is  another  sufficient  answer  lo  this  part  of  the  case.  The  peti- 
tioners have  availed  themselves  of  the  power  of  re-entiy,  and  have  put 
an  end  to  the  estate  of  the  bankrupt  and  repossessed  themselves  "  as 
of  their  former  estate."  Such  an  entiy  is  an  eviction,  and  puts  an  end 
to  the  rent  by  operation  of  law,  and  by  the  terms  of  this  lease,  though 
by  law  and  by  contract  the\r  do  not  thereby  waive  any  existing  right  of 
action  for  rent  in  arrear,  or  "  preceding  breach  of  covenant."  This  is 
all  that  their  disclaimer  amounted  to,  and  if  it  were  not,  they  cannot 
be  heard  after  they  have  entered  and  exercised  all  acts  of  ownership  and 
relet  the  premises,  to  say  that  they  have  not  entered  as  lessors  nor  to 
repossess  the  premises,  but  merely  as  agents  of  the  lessee,  and  to  save 
the  estate  from  waste.  We  have  alread}*  seen  that  this  lease  confers 
no  power  or  agency  upon  the  petitioners  in  this  matter,  and  their  entry 
must  be  taken  to  be  according  to  their  right.  It  is  immaterial  whether 
the  bankruptcy  was  the  breach  for  which  they  entered ;  it  is  enough 
that  the}'  have  entered  lawfully,  and  have  ended  the  terra  and  the  rent 
together.  If  the  lease  had  been  valuable,  and  they  had  relet  the  shop 
for  an  increased  rent,  I  do  not  see  how  the  assignees  could  have  made 
any  valid  objection  to  the  re-entr}-. 

The  petitioners  have  not  waived  an}-  right  they  had  before  entry,  and 
may  prove  for  such  damages  as  they  have  suffered  b}'  the  changes  made 
in  the  stairway  and  shelves.  The  case  was  heard  by  the  register,  Mr. 

1  Re  Webb,  6  B.  R.  302  ;  Re  Hufiiaiji'l,  12  I?.  It.  r>r>4  ;  Re  May,  7  Ben.  238;  Ex 
parte  Lake,  2  Low.  544 ;  Bailey  v.  Loel>,  2  Woods,  578  ace. 


506   EX  PARTE  FAXON.   RE  LAURIE,  BLOOD  &  HAMMOND.   [CHAP.  VI. 

Ellis,  whose  rulings  were  in  accordance  with  my  views  in  every  par- 
ticular. I  find  on  this  point  that  he  refrains  from  assessing  the  dam- 
ages, and  refers  the  whole  matter  to  the  court.  It  was  said  at  the 
argument  that  the  register  had  once  assessed  these  damages  at  seventy- 
six  dollars,  after  a  full  hearing.  If  so  he  must  have  reviewed  his 
decision,  for  he  reports  a  mere,  reference  to  the  court,  and  by  consent 
of  the  parties  omits  the  evidence.  Upon  the  proofs  before  me  I 
consider  fifty  dollars  to  be  ample  damages,  and  assess  the  same 
according!}*. 

The  petitioners  are  entitled  to  prove  for  one  year's  taxes.  Any 
argument  which  shall  establish  their  right  to  prove  for  those  of  1868 
will  be  equally  strong  to  prevent  the  proof  for  1869.  The  covenant  is 
to  pay  all  taxes  assessed  during  the  term,  and  taxes  are  assessed  as  of 
the  first  day  of  May.  The  tenancy  began  June  1,  1868,  and  ended 
about  September  1,  1869.  It  seems  to  me  that  under  this  covenant 
the  lessee  was  bound  to  pay  the  taxes  for  1869,  and  not  those  for  1868, 
and  the  former  having  been  due  in  theory  of  law  at  the  time  of  the 
bankruptcy,  though  not  payable  until  afterwards,  ma}7  be  proved. 
This  debt  is  not  entitled  to  preference,  because  as  between  these  par- 
ties it  rested  in  contract  merely,  and  was  to  all  intents  and  purposes  a 
part  of  the  rent.  The  taxes  were  not  assessed  to  the  bankrupt  nor  to 
the  petitioners,  and  the  city  had  no  right  to  prove  them  in  the  bank- 
ruptcy. There  is  no  right  of  preference  or  lien  to  which  the  petitioners 
can  be  subrogated,  but  only  a  right  of  action  over  against  Fortune,  if 
he  should  neglect  to  pay  the  taxes  to  the  petitioners  on  demand  after 
the}*  had  themselves  paid  them.  Parol  evidence  was  offered  to  show 
that  both  parties  understood  that  the  taxes  of  1868  were  to  be  paid  by 
the  tenant,  but  such  evidence  was  inadmissible,  and  was  rightly  taken 
by  the  register  only  de  bene.  There  was  no  offer  to  show  a  new  con- 
tract by  parol  founded  on  a  new  consideration,  but  merely  to  explain 
the  lease.  Let  orders  be  drawn  in  accordance  with  this  opinion. 


Ex  PARTE  FAXON.     RE  LAURIE,  BLOOD  &  HAMMOND. 
DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS,   1869. 

[Reported  in  1  Lowell,  404.]  . 

THE  bankrupts  hired  a  large  and  valuable  shop  of  the  petitioners, 
and  paid  the  quarter's  rent,  which  fell  due  January  1,  1869.  On  the 
eighth  of  that  month  a  petition  was  filed  against  them  in  bankruptcy, 
but  was  not  pressed  to  an  early  trial,  and  the  adjudication  took  place 
March  26,  1869.  The  assignees  occupied  the  store  for  two  or  three 
months,  and  paid  rent  from  March  26,  but  no  arrangement  was  made 
between  them  and  the  petitioners  concerning  the  rent  from  January  8 


SECT.  I.]  ATKINS   V.   WILCOX.  507 

to  that  day,  and  the  petitioners  now  applied  to  have  it  paid  in  full  by 
the  assignees.     The  case  was  submitted  on  facts  agreed., 

E.  A  very  &  G.  M.  ffobbs,  for  the  petitioners. 

Ji.  F.  Urooks,  for  the  assignees. 

LOWELL,  J.  An  assignee  in  bankruptcy,  unless  restrained  by  the 
terms  of  the  lease  itself,  may  adopt  or  reject  a  term,  as  he  finds  most 
beneficial  for  the  creditors,  and  may  take  a  reasonable  time  to  decide 
the  question.  If  he  takes  the  lease  he  makes  himself  liable,  on  behalf 
of  the  estate,  for  the  rent,  including  at  least  that  of  the  current  quarter, 
and  this  he  must  consider  in  determining  whether  to  adopt  the  lease. 
The  petitioners  would  have  done  more  wisely,  perhaps,  to  insist  on  this 
at  the  time,  but  I  see  no  ground  for  saying  the}-  have  waived  any  of 
their  rights.  In  theory  of  law,  the  assignees  have  been  in  possession 
ever  since  the  petition  was  filed,  and  not  only  from  the  date  of  the  adju- 
dication, which  is  merely  a  finding  that  the  petition  is  well  founded. 
If  the  quarter-day  had  come  round  pending  the  petition,  the  bankrupt 
would  have  been  authorized,  if  he  found  it  necessary  for  the  best  in- 
terests of  his  creditors,  to  pay  the  rent  in  order  to  save  an  ejectment. 
I  have  more  than  once  permitted  this  to  be  done.  And  the  assignees, 
by  the  course  they  have  taken,  affirm  this  to  be  a  case  in  which  such  a 
course  was  prudent  and  proper. 

The  only  reported  case  which  I  have  seen  is  very  short,  and  gives 
no  reasons  or  arguments,  but  the  decision  agrees  with  my  opinion. 
There  the  assignees  were  required  to  pay  rent  from  the  date  of  the 
petition.  Re  Merrifield,  3  B.  R.  25.  I  do  not  know  that  any  question 
was  raised  in  that  case,  to  distinguish  the  date  of  the  petition  from  tliiat 
of  the  adjudication  ;  but  if  an  assignee  is  to  pa}^  only  for  his  own  occu- 
panc}',  he  must  be  charged  from  the  date  of  the  assignment.  There  is 
no  argument  which  will  make  him  liable  from  the  adjudication  that  does 
not  apply  to  the  date  of  the  petition,  which  is  the  true  beginning  of  l.he 
proceedings,  and  the  controlling  date  in  all  these  matters. 

Petition  granted.1 


ATKINS   v.  WILCOX. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  FIFTH  CIRCUIT, 
DECEMBER  18,  1900. 

[Reported  in  105  Federal  Reporter,  595.] 

BEFORE  PARDEE,  McCoRMiCK,  and  SHELBY,  Circuit  Judges. 
McCoRMiCK,  Circuit  Judge.     On  the  4th  day  of  May,  1899,  Leopold 
Keiffer,  by  a  written  lease,  rented  from  the  appellant,  Mrs.  Sarah  E. 

1  The  trustee  has  a  reasonable  time  within  which  to  determine  whether  he  will 
accept  a  lease,  and  if  he  decides  not  to  accept,  is  liable  for  the  reasonable  value  of  any 
use  of  the  premises  he  may  have  had.  Re  Sherwoods,  210  Fed.  756  (C.  C.  A.). 


508  ATKINS   V.   WILCOX.  [CHAP.  VI. 

Atkins,  certain  premises  described  in  the  lease  for  the  term  of  one  year, 
commencing  on  the  1st  day  of  October,  1899,  and  ending  on  the  30th 
day  of  September,  1900,  for  a  monthly  rental  of  $333. 33£,  for  which 
Keifler  executed  and  delivered  to  the  appellant  twelve  rent  notes,  bear- 
ing even  date  with  the  lease,  and  payable  to  the  lessor,  one  on  the  1st 
day  of  November,  1899,  and  one  on  the  1st  day  of  each  and  every  suc- 
ceeding month  (except  the  last  one,  pa}-able  on  the  30th  of  September), 
fixing  the  interest  at  the  rate  of  8  per  cent  per  annum  from  maturity 
until  paid.  The  lease  recited  that  should  the  property  be  destroyed  by 
fire,  or  should  the  lessee  be  deprived  of  the  use  of  the  premises  by  some 
other  unforeseen  event,  not  due  to  any  fault  or  neglect  on  his  part,  then 
he  should  be  entitled  to  a  credit  for  the  unexpired  term  of  the  lease,  and 
the  corresponding  proportion  of  rent  notes  should  be  annulled  and  re- 
turned to  hint.  At  the  time  of  the  making  of  this  lease  Keiffcr  was 
in  possession  of  the  premises  under  a  lease  of  similar  import  bearing 
date  8th  of  June,  1898,  which  provided  for  a  term  of  one  year,  com- 
mencing on  the  1st  day  of  October,  1898,  and  ending  on  the  30th  day 
of  September,  1899.  On  Octobers,  1899,  Keiffer  presented  his  peti- 
tion to  the  court  of  bankruptcy  to  be  adjudged  a  bankrupt,  which  peti- 
tion, in  the  judge's  absence,  was  referred  to  a  referee,  who  on  the  same 
da}T  declared  and  adjudged  the  petitioner  to  be  a  bankrupt.  By  a  stipu- 
lation of  the  parties,  only  certain  portions  of  the  record  in  the  bank- 
rupt proceeding  were  brought  up  on  this  appeal,  from  which  it  appears 
that  the  appellant  made  proof  of  a  secured  debt  against  the  estate  of 
the  bankrupt  on  October  31,  1899,  claiming  the  aggregate  amount  of 
the  twelve  rent  notes  given  and  held  under  the  lease  of  date  May  4,  1899, 
and  to  become  pa3-able  as  above  recited.  The  claim  and  proof  thereof 
embraced  other  items,  which  do  not  require  further  notice  here.  On 
November  21,  1899,  this  proof  of  debt  was  filed  by  the  referee.  The 
record  we  have  does  not  show  any  further  action  in  the  bankrupt  estate 
until  March  7,  1900,  when  an  account  of  C.  O.  Wilcox,  trustee  of  the 
estate  of  Leopold  Keiffer,  bankrupt,  was  presented  to  and  filed  b}T  the 
referee,  who  thereon  made  an  order  of  that  date,  as  follows  :  "  Let  a 
meeting  of  creditors  be  held  on  March  20,  1900,  at  3  p.  in.  Let  them 
be  notified  according  to  law,  and  that  they  do  show  cause  on  the  above 
date  why  said  account  should  not  be  approved  and  homologated." 
The  account  showed  the  receipt  of  all  of  the  funds  that  had  come  into 
the  hands  of  the  trustee,  aggregating  $3,651.44.  It  also  showed 
twenty  items  of  disbursement  that  had  been  made  by  the  trustee,  and 
bore  an  item,  "Reserved  for  future  costs,  $150.00,"  which,  added  to 
the  disbursements,  aggregated  $2,253.77.  Among  the  disbursements 
is  the  following:  "Mrs.  Sarah  E.  Atkins,  landlord.  Rent  for  Sep- 
tember, October,  and  November,  1899,  three  months,  at  $333. 33  J, 
$1,000.00."  On  March  20,  1900,  the  appellant  appeared  before  the 
referee,  and  filed  her  written  opposition  to  the  account  submitted  by 
the  trustee,  on  the  ground  that  she  had  proved  her  claim  for  rent  for 
the  whole  of  the  twelve  months  specified  in  the  lease  of  May  4,  1899 


SECT.  I.]  ATKINS   V.,  WILCOX.  509 

(and  other  grounds  not  necessary  here  to  notice) ,  and  that  by  the  laws 
of  Louisiana  she  has  a  lien  of  the  first  rank  on  all  the  property  in  the 
leased  premises,  and  that  the  total  assets  in  the  hands  of  the  trustee  and 
on  deposit  to  the  credit  of  the  estate  were  realized  from  the  sale  of  the 
property  contained  in  the  leased  premises,  and  subject  to  her  lien, 
wherefore  she  opposes  each  and  every  item  on  said  account,  and  prays 
that  she  be  declared  entitled  to  a  lien  first  in  rank  on  all  the  property 
contained  in  the  leased  premises,  or  on  the  proceeds,  and  that  the 
account  of  the  trustee  be  amended,  and  he  be  ordered  to  pa}-  to  her  the 
full  amount  of  her  claim  in  preference  to  all  other  claims.  The  ref- 
eree rejected  her  claim  for  the  months  of  December,  1899,  to  Septem- 
ber, 1900,  inclusive,  for  reasons  elaborately  given  in  his  judgment 
thereon,  from  which  judgment  Mrs.  Atkins  appealed  to  the  judge  sitting 
in  the  court  of  bankruptc}',  by  whom  the  judgment  of  the  referee  was 
affirmed,  and  she  prosecutes  this  appeal. 

It  appears  that  the  trustee  occupied  the  premises  during  the  months 
of  October  and  November,  1899,  and  that  he  allowed  and  paid  on 
Mrs.  Atkins'  claim  for  rent  the  rent  which  accrued  for  the  months  of 
October  and  November,  under  the  current  lease,  at  the  rate  and 
amount  of  the  notes  which  had  been  given  therefor.  The  appellant 
insists  that  the  trustee  was  without  right  or  interest  to  contest  the  lien 
of  the  opponent,  as  it  was  claimed  in  her  proof  of  debt.  We  are  clear 
that  this  position  is  not  well  taken.  By  the  express  terms  of  the  stat- 
ute the  trustee  is  selected  by  the  creditors.  By  the  clearest  implication 
he  represents  all  the  creditors,  and  as  such  representative  has  an  in- 
terest in  the  just  administration  of  the  estate  which  belongs  to  the 
creditors.  Moreover,  this  right  is  expressl}*  recognized  in  the  sixth 
paragraph  of  general  order  in  bankruptcy  21  (32  C.  C.  A.  xxii.,  89 
Fed.  ix.),  which  has  itself  the  force  of  a  statute,  even  if  not  clearly 
founded  on  the  text  of  the  statute,  which  we  think  it  is.  It  appears 
to  give  the  trustee  precedence  even  of  the  creditors,  for  the  language  is 
that,  "when  the  trustee  or  any  creditor  shall  desire  the  re-examina- 
tion of  any  claim  filed  against  the  bankrupt's  estate,  he  may,"  etc. 
The  appellant  by  her  proof  of  debt  appears  to  found  her  claim,  in  part 
at  least,  on  the  following  provision  in  the  lease :  — 

"  Should  the  lessee  at  an}*  time  fail  to  pay  the  rent  punctually  at 
maturity  as  stipulated,  the  rent  for  the  whole  unexpired  time  of  this 
lease  shall,  without  putting  said  lessee  in  default,  at  once  become  due 
and  exigible." 

In  her  affidavit  in  support  of  her  claim  she  contends  :  — 

"  According  to  the  terms  of  said  lease,  the  note  maturing  November 
1-4,  1899,  not  having  been  paid,  then  the  whole  unexpired  amount  of 
said  lease  represented  by  said  notes  becomes  due  and  exigible." 

At  the  date  of  the  adjudication  in  bankruptcy,  and  at  the  date 
when  the  debt  was  proved,  there  had  been  no  default  in  the  pay- 
ment of  rent  under  the  then  current  lease,  or  any  violation  of  its 
conditions  which  would  render  the  notes,  or  any  of  them,  given  for 


510  ATKINS   V.   WILCOX.  [CHAP.  VL 

the  rent  that  was  to  accrue  due  and  exigible,  and  authorize  the  lessor 
to  enforce  her  lien  on  the  property  then  in  the  leased  premises  for  the 
payment  of  all  or  any  one  of  the  rent  notes  given  and  held  under  that 
lease.  The  lease  does  not  provide  in  express  terms  that  the  bankruptcy 
of  the  lessee  would  have  the  effect  to  mature  the  notes  and  render  them 
exigible.  The  present  bankruptcy  act  has  no  direct  provision  on  this 
subject.  The  bankruptcy  act  of  1867  contained  this  provision :  — 

"Where  the  bankrupt  is  liable  to  pay  rent  or  other  debt  falling  due 
at  fixed  and  stated  periods,  the  creditor  may  prove  for  a  propor- 
tionate part  thereof  up  to  the  time  of  the  bankruptcj*,  as  if  the  same 
grew  due  from  day  to  day,  and  not  at  such  fixed  and  stated  periods." 
Section  19. 

No  such  provision,  or  its  equivalent,  appears  in  the  present  act.  Its 
language  applicable  to  the  case  we  are  considering  is  that  debts  of  the 
bankrupt  may  be  proved  and  allowed  against  his  estate  which  are  a 
fixed  liability,  as  evidenced  by  a  judgment  or  an  instrument  in  writ- 
ing, absolutely  owing  at  the  time  of  the  filing  of  the  petition  against 
hitn,  whether  then  payable  or  not,  with  any  interest  thereon  which 
would  have  been  recoverable  at  that  date,  or  with  a  rebate  of  interest 
upon  such  as  were  not  then  payable  and  do  not  bear  interest.  Sec- 
tion 63.  This  provision  has  not  }-et  been  construed  b}~  the  Supreme 
Court,  nor,  as  far  as  we  are  advised,  by  any  one  of  the  circuit  courts 
of  appeals.  The  National  Bankruptcy  News  reports  show  that  it  has 
been  frequently  ruled  on  by  referees  in  bankruptcy,  and  by  four  of 
the  judges  for  districts  in  other  circuits.  In  the  opinions  of  the  re- 
ferees and  of  the  judges  of  the  courts  of  bankruptcj",  just  referred  to, 
there  is  a  marked  unanimity  to  the  extent  that  rent  to  accrue  in  the 
future,  if  it  can  be  called  a  debt,  is  a  contingent  one,  both  as  to  its 
amount  and  as  to  its  very  existence,  and  that  there  is  no  provision  in 
the  act  of  1898  which  allows  proof  of  such  debts.  In  the  very  nature 
of  the  case,  there  is  great  diversity  of  view  as  to  the  ground  on  which 
this  ruling  is  placed.  The  opinions  and  judgments  necessarily  have 
relation  to  the  terms  of  the  contract  of  lease  out  of  which  the  claim 
for  future  rent  grew,  and  are  largely  controlled  by  the  particular  pro- 
visions of  the  respective  instruments.  Some  of  the  opinions,  however, 
take  ground  broad  enough  to  cover  the  subject,  without  reference  to  the 
terms  of  leases  in  general  use.  The  judge  for  the  district  of  Kentucky 
in  his  opinion  uses  this  language  :  — 

"The  court  sees  no  way  to  avoid  the  conclusion  that  the  relation 
of  landlord  and  tenant  in  all  such  cases  ceases,  and  must  of  neces- 
sity cease,  when  the  adjudication  is  made.  If  the  relation  does  cease, 
the  landlord  afterwards  has  no  tenant,  and  the  tenant  has  no  landlord. 
At  the  time  of  the  adjudication  the  bankrupt  is  clearly  absolved  from 
all  contractual  relations  with,  and  from  all  personal  obligations  to,  the 
landlord  growing  out  of  the  lease,  subject  to  the  remote  possibility  that 
his  discharge  may  be  refused,  —  a  chance  not  worth  considering.  After 
the  adjudication  there  is  no  obligation  on  the  part  of  the  tenant  grow- 


SECT.  I.]  ATKINS   V.   WILCOX.  511 

ing  out  of  the  lease.  He  not  only  owes  no  subsequent  dut}*,  but  any 
attempt  on  his  part  to  exercise  any  of  the  rights  of  a<  tenant  would 
make  him  a  trespasser.  His  relations  to  the  premises  and  to  the  con- 
tract are  thenceforth  the  same  as  those  of  any  other  stranger.  He 
cannot  use  nor  occupy  the  premises.  No  obligation  on  his  part  to  pay 
rent  can  arise  when  he  can  neither  use  nor  occupy  the  property.  The 
one  follows  the  other,  and  it  seems  clear  that  no  provable  debt,  and, 
indeed,  no  debt  of  any  sort,  against  the  bankrupt,  can  arise  for  future 
rent.  No  rent  can  accrue  after  the  adjudication  in  such  a  way  as  to 
make  it  the  debt  of  the  bankrupt,  and  future  rent  has  not,  in  any  just 
sense,  accrued  before  the  adjudication."  In  re  Jefferson  (D.  C.),  93 
Fed.  951. 

The  judge  of  the  court  for  the  Eastern  District  of  North  Carolina 
seems  to  concur  in  the  views  just  stated.  In  his  opinion  we  find  this 
language : — 

"  As  to  the  rent  of  the  bank  :  The  contractual  relations  being  ter- 
minated, a  landlord  is  not  entitled  to  prove  a  claim  for  rent  against  a 
bankrupt  after  such  bankrupt  ceases  to  use  the  building.  The  relations 
of  landlord  and  tenant  are  severed  by  operation  of  the  bankruptcy 
law.  The  trustee  of  his  estate  ma}-,  after  adjudication,  occupy  and  use 
the  rented  or  leased  premises  for  the  estate ;  but  under  such  circum- 
stances it  would  be  chargeable  to  the  estate,  not  as  rent  under  bank- 
rupt's contract,  but  as  cost  and  expenses  of  administering  the  same." 
Bray  v.  Cobb,  2  Nat.  Bankr.  N.  588,  100  Fed.  270. 

Touching  the  language  above  quoted  from  the  opinion  of  Judge 
Evans  (In  re  Jefferson,  supra),  Judge  Lowell,  of  the  Massachusetts 
district,  says :  — 

"  With  all  respect  for  the  learned  judge,  I  must  think  the  above  re- 
marks made  somewhat  hastily,  unless  the}'  are  to  be  taken  as  limited 
to  the  particular  lease  in  question,  or  made  to  depend  upon  some  peculiar 
provision  of  the  Statutes  of  Kentucky.  Let  us  consider  an  actual 
example.  A  lease  recently  examined  was  made  for  a  term  of  several  hun- 
dred years,  upon  a  payment  of  sixteen  thousand  dollars  at  the  beginning 
of  the  term,  and  subject  to  a  future  rent  of  one  dollar  a  year  if  demanded 
by  the  lessor.  Clearly  this  would  be  an  asset  of  a  bankrupt's  estate 
which  the  trustee  would  almost  certainly  elect  to  assume,  and  I  can  find 
nothing  in  the  bankruptcy  act  which  would  terminate  the  lease  and  en- 
title the  landlord  to  possession.  Many  existing  ground  leases,  also,  would 
certainly  be  assumed  by  a  trustee  in  bankruptcy  of  the  lessee,  and  it 
would  be  unjust  to  hold  them  terminated  b}-  the  adjudication.  It  fol- 
lows, then,  that  the  lease  here  in  question  was  not  determined  b}-  the 
bankruptcy  of  the  lessee,  but  only  by  the  re-entr}'  of  the  lessor." 

The  actual  example  proposed  for  consideration  by  Judge  Lowell  is  a 
leasehold  in  form,  certainly,  but  it  appears  to  be  substantially,  in  fact, 
a  purchase  of  the  freehold  for  a  present  consideration  paid  in  cash  at 
the  beginning  of  the  term,  and  to  have  value  as  an  asset  equal  to  the 
current  market  price  of  the  freehold  in  the  premises  let.  It  is  an  estate 


512  ATKINS   V.    WILCOX.  [CHAP.  VI. 

with  such  an  inconsiderable  burden  as  may  well  be  disregarded,  and,  as 
the  learned  judge  says,  clearly  this  would  be  an  asset  of  a  bankrupt's 
estate  which  the  trustee  not  only  would  almost  certainly  elect  to  assume, 
but  which  the  creditors,  or  the  court  on  their  motion  or  on  its  own  motion, 
would  compel  him  to  assume.  The  doctrine  of  election  to  which  he 
refers  sprung  out  of  the  state  of  the  law  in  bankruptcy  as  it  was  at  an 
early  time  in  England  construed  by  the  common  law  courts.  The  rule  as 
then  announced  has  been  greatl}'  modified  in  England  by  statutes  passed 
from  time  to  time,  and  the  decision  of  the  English  courts  on  these 
various  statutes,  and  the  decisions  of  the  State  court  in  this  country  on 
the  various  insolvency  acts,  are  more  interesting  than  helpful  in  our 
effort  to  construe  the  provision  of  our  bankruptcy  law  now  in  force. 
Moreover,  the  question  as  to  the  effect  that  the  adjudication  in  bank- 
ruptcy has  on  the  relations  subsisting  between  the  landlord  and  tenant, 
while  it  is  kindred  to  the  question  with  which  we  are  dealing,  its  con- 
nection therewith  is  by  no  means  vital.  The  language  of  our  statute 
affecting  the  claim  here  involved  requires  that  the  debt  shall  be  a  fixed 
liability  absolutely  owing  at  the  time  of  filing  the  petition.  Under  the 
insolvent  law  of  the  State  of  Massachusetts  prior  to  the  statute  of 
1879,  only  such  debts  (with  certain  exceptions)  were  provable  as  were 
"  absolutely  due  "  at  the  time  of  the  first  publication  of  the  notice  of 
issuing  the  warrant  of  insolvencj'.  The  case  of  Bowditch  v.  Raymond, 
146  Mass.  109,  15  N.  E.  285,  shows  that  the  language  "  absolutely 
due"  was  treated  as  exactly  equivalent  to  the  language  "absolutely 
owing,"  as  it  must  be,  for  the  statute  provided  for  proving  debts  pay- 
able at  a  future  date.  After  referring  to  numerous  cases  in  which  it  had 
been  held  that  under  that  statute  future  rent  to  accrue  under  a  lease  in 
which  the  insolvent  debtor  is  lessee  cannot  be  proved,  it  is  said  :  — 

"  The  principle  of  these  cases  is  that  such  rent  is  not  a  debt  abso- 
lutely due  at  the  time  of  the  first  publication.  The  lease  ma\-  be  ter- 
minat^ed  by  the  eviction  of  the  lessee  or  otherwise,  and  no  rent  may  ever 
accrue  or  become  due.  The  lessor's  claim  is  a  contingent  one.  It  is  not 
contingent  merely  as  to  amount,  but  the  very  existence  of  the  claim  de- 
pends upon  a  contingenc}'," —  referring  to  Boardman  v.  Osborn,  23 
Pick.  295. 

Further  on  in  the  opinion  it  is  said  :  — 

"  The  existence  of  an}"  debt  in  the  future  depends  upon  contingencies, 
and  therefore  the  appellants'  claim  cannot  be  proved  under  our  insolvent 
law  prior  to  the  statute  of  1879." 

In  the  lease  before  us  the  lessee  binds  himself — 

"  To  make  no  sublease,  nor  transfer  said  lease  in  whole  or  in  part,  nor 
use  the  premises  for  any  other  purpose  than  that  herein  contemplated, 
without  the  written  consent  of  the  lessor." 

And  again  it  declares  :  — 

"  And,  should  the  lessee  in  &ny  manner  violate  any  of  the  conditions 
of  this  lease,  the  lessor  hereby  expressly  reserves  to  himself  the  right 
of  cancelling  said  lease  without  putting  the  lessee  in  default ;  the  lessee 


SECT.  I.]  ATKINS    V.   WILCOX.  513 

hereby  assenting  thereto,  and  expressly  waiving  the  legal  notice  to 
vacate  the  premises." 

It  is  not  so  clear  that  this  leasehold  is  an  asset  of  the  bankrupt's 
estate  which  the  trustee  would  almost  certainly  elect  to  assume,  or  that 
the  court  should  on  its  own  motion,  or  on  the  motion  of  creditors,  re- 
quire him  to  assume.  Nor  is  it  quite  clear  what  he  could  do  with  it  if 
he  did  assume  it.  It  is  not  necessary  for  us  to  hold  that  the  adjudica- 
tion in  bankruptcy  terminated  this  lease  and  absolved  the  relations 
between  the  landlord  and  the  tenant  thereby  created,  nor  is  it  necessary 
or  prudent  to  announce  in  advance  what  the  holding  should  be  in  any 
given  case  which  may  possibly  arise.  We  therefore  content  ourselves 
with  announcing  that,  in  our  opinion,  there  was  no  error  in  the  judg- 
ment of  the  district  court  rejecting  the  appellant's  claim.  That  judg- 
ment is  therefore  affirmed.1 

1  Proof  for  rent  not  due  before  bankruptcy  was  not  allowed  under  the  early  Eng- 
lish acts,  and  the  bankrupt  remained  liable  on  his  covenant  to  pay  rent  even  though 
the  assignees  had  accepted  the  lease.  Mills  v.  Auriol,  1  H.  Bl.  433  ;  Auriol  v.  Mills, 
4  T.  R.  94;  Boot  v.  Wilson,  8  East,  311.  By  49  Geo.  III.,  c.  121,  §  19,  where  the 
assignees  accepted  the  lease,  the  bankrupt  was  discharged.  Where  they  declined  he 
still  remained  liable.  Copeland  v.  Stephens,  1  B.  &  A.  593.  But  by  6  Geo.  IV.  c. 
16,  §  75,  the  bankrupt  was  allowed  to  free  himself  from  liability  where  the  assignees 
declined  the  lease  by  surrendering  it  to  the  landlord.  No  proof  for  rent  not  due 
at  the  date  of  the  filing  of  the  petition  was  allowed,  however,  until  an  express  pro- 
vision allowing  proof  for  a  proportionate  part  of  rent  and  other  payments  falling  due 
at  fixed  periods  was  inserted  in  24  &  25  Viet.  c.  134,  §  150.  This  was  repeated  in 
subsequent  acts,  32  &  33  Viet.  c.  71,  §  35  ;  46  &  47  Viet.  c.  52,  sched.  2,  par.  19, 
and  was  copied  by  Congress  in  the  act  of  1867  (§  19). 

In  this  country  rent  not  due  before  the  bankruptcy  has  never  been  held  provable 
unless  expressly  made  so  by  statute.  Re  Bell,  85  Cal.  119  ;  Kodick  v.  Bunker,  84  Me. 
441 ;  Savory  v.  Stocking,  4  Gush.  607  ;  Tread  well  v.  Marden,  123  Mass.  390 ;  Deane  v. 
Caldwell,  127  Mass.  242;  Bowditch  v.  Raymond,  146  Mass.  109,  114;  Wilder  v.  Pea- 
body,  37  Minn.  248;  Re  Shotwell,  49  Minn.  170  (con/  Kalkhoff  v.  Nelson,  60  Minn. 
284) ;  Re  Hevenor,  144  N.  Y.  271  (con/.  People  v.  St.  Nicholas  Bank,  151  N.  Y.  592) ; 
Hendricks  v.  Judah,  2  Caines,  25;  Bosler  v.  Kuhn,  8  W.  &  S.  183;  Weinman's 
Estate,  164  Pa.  405. 

As  complete  a  statutory  solution  as  any  of  the  difficulty  in  regard  to  leases  is  con- 
tained in  the  Massachusetts  Insolvency  Law,  Pub.  Stat.  c.  157,  §  26.  "  When  any  of 
the  property  of  a  debtor  consists  of  a  lease  or  agreement  in  writing,  whereby  he  is 
liable  for  the  rent  therein  reserved,  or  for  the  use  and  occupation  of  premises  as  therein 
stipulated,  the  assignee  at  any  time  may,  and  at  the  request  in  writing  of  either  the 
debtor,  or  of  the  lessor,  or  of  those  having  his  estate  in  the  premises,  shall,  within 
twenty  days  after  such  request,  by  a  written  instrument  filed  with  the  records  of  the 
case,  elect  either  to  accept  and  hold  under  said  lease  or  agreement  in  writing,  or  to 
disclaim  the  same ;  and,  if  he  elects  to  disclaim,  such  lease  or  agreement  in  writing 
shall  thereupon  be  deemed  to  have  been  surrendered  as  of  the  day  on  which  said  dis- 
claimer was  so  filed.  And  the  debtor,  provided  he  obtains  his  discharge  in  insol- 
vency, shall  be  discharged  from  all  liability  under  or  by  reason  of  said  lease  or  agree- 
ment in  writing,  whether  the  assignee  does  or  does  not  disclaim  as  aforesaid ;  and 
the  lessor,  or  those  having  his  estate  in  the  premises,  may  prove  such  damages,  if 
any,  as  are  caused  by  such  surrender,  as  a  debt,  against  the  estate  of  the  debtor." 


514  PARKER    V.   NORTON.  [CHAP.  VL 

PARKER   v.   NORTON. 

KING'S  BENCH,  MAY  31,  1796. 

[Reported  in  6  Term  Reports,  695.] 

THIS  was  an  action  of  trover  for  a  bill  of  exchange  drawn  the  28th  of 
February,  1795,  by  the  plaintiff  on  and  accepted  by  J.  B.  Fowler  for 
£24  19s.,  payable  two  months  after  date  to  the  plaintiff  or  order ;  to 
which  the  defendant  pleaded:  First,  the  general  issue;  secondl}',  his 
bankruptcy  before  the  cause  of  action  arose  ;  and  thirdly,  that  before 
the  time  of  the  supposed  conversion  the  plaintiff  sent  and  delivered  to 
the  defendant,  and  the  defendant  received  from  the  plaintiff,  the  said 
bill  of  exchange,  to  the  intent  that  the  defendant  might  present  the 
same  when  due  to  Fowler  for  payment,  and  might  receive  from  Fowler 
the  money  therein  mentioned,  to  and  for  the  use  and  on  the  account  of 
the  plaintiff,  and  might  remit  the  said  money  to  the  plaintiff  when  he 
should  have  so  received  the  same  ;  that  before  the  bill  became  due,  to 
wit,  on  the  1st  of  March,  1795,  the  defendant  discounted  the  bill,  and 
gave  awa}7  and  exchanged  the  same  for  mone}r,  and  received  the  value 
thereof  in  money,  and  kept  and  applied  the  money  so  by  him  received 
to  his  own  use,  which  is  the  same  supposed  conversion  and  cause  of 
action,  etc.  The  defendant  then  set  forth  in  this  plea  all  the  circum- 
stances necessary  to  show  that  he  had  become  a  bankrupt  on  the  19th 
of  March,  1795.  It  also  stated  that  the  defendant  had  since  obtained 
his  certificate,  though  it  did  not  set  forth  that  that  certificate  had  been 
allowed  by  the  Lord  Chancellor.  And  it  concluded  with  an  averment 
that  the  supposed  conversion,  and  the  cause  of  action  mentioned  in 
the  declaration,  accrued  before  the  defendant  became  a  bankrupt. 

Issue  was  taken  on  the  first  plea ;  and  the  plaintiff  demurred  gen- 
erally to  the  two  last. 

Lawes,  in  support  of  the  demurrer. 

Abbot,  contra. 

Lord  KENYON,  C.  J.  Some  of  the  arguments  that  have  been  ad- 
dressed to  us  on  behalf  of  the  defendant  are  founded  on  the  supposition 
that  this  is  a  compassionate  case :  even  if  that  supposition  were  true, 
we  could  not  decide  the  case  in  his  favor  against  the  rules  of  law. 
But  if  ever  a  case  was  brought  before  a  court  of  justice  that  was  entitled 
to  less  favor  than  others  ;  this,  as  it  is  disclosed  on  the  part  of  the  de- 
fendant, is  that  case. 

The  plaintiff,  being  the  owner  of  a  bill  of  exchange,  intrusted  it  to 
the  care  of  the  defendant  in  order  that  when  it  became  payable  he 
should  obtain  pa3"ment ;  the  latter,  without  waiting  for  the  da}*  of  pa}-- 
ment,  and  in  violation  of  his  trust,  discounted  the  bill,  received  less 
than  its  value,  and  applied  the  money  to  his  own  use.  This  is  certainly 
a  dishonorable  transaction  ;  but  still  if  the  rules  of  law  protected  him  in 
this  dishonesty,  we  could  not  deprive  him  of  this  protection.  However, 


gECT.  I.]  IN   RE   BOSTON   &   FAIRHAVEN   IRON   WORKS.  515 

I  am  glad  that  the  law  will  not  protect  him  in  this  case.  "When  the 
case  of  Goodtitle  v.  North,  Douglas,  583,  was  argued  here,  Lord  Mans- 
field put  an  end  to  it  by  one  observation,  "The  form  of  the  action  is 
decisive."  The  action  of  trover  is  founded  on  a  tort.  The  defendant's 
case  is  rested  on  the  dictum  of  a  very  respectable  judge  in  the  case  of 
Johnson  v.  Spiller,  Douglas,  167.  But  I  understand  Mr.  J.  Buller,  in 
using  the  words  attributed  to  him,  to  have  meant  only  this,  that  if  a 
person  has  his  election  of  two  remedies,  and  may  either  bring  trover  or 
any  other  action,  the  possibility  of  his  electing  to  bring  trover  shall  not 
prevent  his  proving  his  debt  under  the  commission  of  bankrupt  if  he 
will  waive  the  tort ;  and  I  assent  to  the  proposition  so  qualified.  In 
the  present  case  the  defendant  did  not  receive  all  the  money  which  was 
due  on  the  note,  the  discount  was  deducted.  If  the  plaintiff,  after  con- 
sidering what  remedy  he  should  take,  had  brought  an  action  for  money 
had  and  received,  he  would  have  affirmed  the  act  of  the  defendant,  and 
the  bankruptcj'  and  certificate  would  have  been  an  answer  to  that 
action.  But  can  it  be  said  that  the  plaintiff  was  bound  to  resort  to 
such  an  action,  and  to  abandon  the  rest  of  his  demand  ?  If  he  were, 
the  same  rule  must  prevail  in  other  cases.  Suppose,  instead  of  this 
being  a  bill  for  twenty-four  pounds  it  had  been  a  bill  for  so  many  thou- 
sand pounds  and  payable  at  a  distant  day,  and  the  defendant  had  dis- 
counted it,  would  it  be  giving  satisfaction  to  the  plaintiff  either  in 
justice  or  conscience  to  compel  him  to  receive  a  part  instead  of  the 
whole  amount  of  the  bill?  When  this  bill  was  deposited  with  the 
defendant,  it  was  his  duty  to  wait  until  the  day  of  payment  before  he 
received  the  money,  and  then  to  carry  the  money  to  the  plaintiff; 
instead  of  which  he  has  for  his  own  convenience  received  a  part  instead 
of  the  whole  value  of  the  bill,  and  converted  the  money  to  his  own  use. 
In  this  case,  therefore,  the  remedy  by  an  action  for  money  had  and 
received  would  not  have  done  the  plaintiff  complete  justice ;  and  though 
he  might  have  waived  asserting  his  right  to  the  full  extent,  the  law  will 
not  compel  him  to  do  so.  On  the  whole  I  am  clearly  of  opinion,  on 
principles  of  law  and  justice,  that  the  plaintiff  may  maintain  this  action 
of  trover.1 


IN  RE  BOSTON   &  FAIRHAVEN  IRON  WORKS. 
CIRCUIT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS,  APRIL  30,  1885. 

[Reported  in  23  Federal  Reporter,  880.] 

COLT,  J.  On  March  2,  1878,  the  Boston  &  Fairhaven  Iron  Works 
filed  a  petition  in  bankruptcy  in  the  United  States  District  Court  of 
Massachusetts,  and  were  adjudged  bankrupts.  On  the  22d  of  March, 
1880,  one  Cyril  C.  Child,  of  Boston,  recovered  judgment  in  the  United 

1  ASHHURST,  GROSE,  and  LAWRENCE,  J.J.,  delivered  concurring  opinions. 


516  IN   RE   BOSTON   &   FAIRHAVEN   IRON   WORKS.        [CHAP.  VI. 

States  Circuit  Court  for  this  district  against  the  bankrupt  corporation, 
for  the  sura  of  $5,640.26",  and  $1,773  28  costs  of  suit,  upon  a  claim  for 
profits  from  the  infringement  of  a  patent.  On  July  19,  1884,  the  proof 
of  claim  was  duly  presented  before  the  register,  who  refused  to  allow 
the  same,  upon  the  ground  that  it  appeared  to  be  a  claim  for  damages 
for  infringement  of  a  patent-right  not  converted  into  a  judgment,  or 
otherwise  liquidated,  prior  to  the  date  of  bankruptc}".  Subsequently 
the  District  Court  held  that  the  claim  was  provable  against  the  estate 
under  section  5067  of  the  Revised  Statutes.  This  ruling  was  based 
upon  the  assumption  admitted  by  counsel  that  the  decree  in  the  patent 
suit  was  not  for  damages,  but  for  the  profits  of  the  bankrupt  corpora- 
tion, as.  an  infringer  of  the  patent.  The  present  hearing  arises  on  an 
appeal  b}'  the  assignees  to  this  ruling  of  the  District  Court. 

A  claim  for  damages  for  a  tort  is  not  a  claim  provable  in  bankruptc}', 
unless  liquidated  or  reduced  to  judgment  prior  to  the  date  of  pro- 
ceedings in  bankruptcy.  In  re  Schuchardt,  15  N.  B.  R.  161  ;  Black  v. 
McClelland,  12  N.  B.  R.  481 ;  In  re  Hennocksburgh,  7  N.  B.  R.  37.1 

A  claim  for  an  account  of  profits  against  an  infringer  of  a  patent- 
right  has  been  held  to  be  provable  in  bankruptc}',  on  the  ground  that  it 
is  not  a  claim  for  damages,  but  is  more  like  an  equitable  claim  for 
money  had  and  received,  for  the  use  of  the  patentee,  the  wrcng-doer 
being  a  trustee  of  the  profits  for  the  patentee.  Watson  v .  Holliday, 
20  Ch.  Div.  780  ;  Re  Blandin,  1  Low.  543. 

But  this  view  has  been  disapproved  by  the  Supreme  Court  in  Root  v. 
Railway  Co.,  105  U.  S.  189,  214,  where,  upon  careful  consideration,  it 
was  held  that  the  infringer  of  a  patent-right  was  not  a  trustee  of  the 
profits  derived  from  his  wrong  for  the  patentee  ;  that  to  hold  otherwise 
would,  in  effect,  extend  the  jurisdiction  of  equitj"  to  every  case  of  tort 
where  the  wrong-doer  had  realized  a  pecuniary  profit  from  his  wrong. 
The  court  decided  that  a  bill  in  equity  for  a  naked  account  of  profits 
and  damages  against  an  infringer  of  a  patent  could  not  be  sustained 
upon  the  ground  that  the  infringer  was  a  trustee  for  the  profits.  See 
also  Child  v.  Boston  &  Fairhaven  Iron  Works,  137  Mass.  516,  recently 
decided  by  the  Supreme  Court  of  Massachusetts. 

It  seems  to  us  that  the  reasoning  of  the  court  in  Root  v.  Railway  Co. 
is  decisive  of  the  question  raised  by  this  appeal.  It  follows  that  the 
claim  of  Child  was  not  a  claim  provable  against  the  estate  of  the  bank- 
rupts, and  should  not  be  allowed,  and  that  the  ruling  of  the  District 
Court  should  be  reversed. 

1  A  judgment  rendered  before  bankruptcy,  though  for  a  tort,  has  been  provable 
under  all  bankruptcy  statutes.  Robinson  v.  Vale,  2  B.  &  C.  762 ;  Greenway  r.  Fisher, 
7  B.  &  C.  436  ;  Re  Book,  3  McLean,  317  ;  Re  Wiggers,  2  Biss.71 ;  Re  Hennocksburgh, 
7  B.  R.  37;  Rowland  v.  Carson,  16  B.  R.  372;  Hays  v.  Ford,  55  Incl.  52;  Ex  parte 
Thayer,  4  Cow.  66;  Hayden  v.  Palmer,  24  Wend.  364;  Comstock  v.  Grout,  17  Vt.  512. 
See  also  Bangs  v.  Watson,  9  Gray,  211 ;  Pierce  v.  Eaton,  11  Gray,  398;  Wolcott  v. 
Hodge,  15  Gray,  547;  Re  Comstock,  22  Vt.  642.  But  a  mere  verdict  or  award  is  not 
sufficient.  Buss  v.  Gilbert,  2  M.  &  S.  70;  Ex  parte  Brooke,  3  Ch.  D.  494;  Black  v. 
McClelland,  12  B.  R.  481 ;  Zimmer  v.  Schleehauf,  115  Mass.  52;  Hodges  t;.  Chace,  2 
Wend.  248;  Kellogg  v.  Schuyler,  2  Denio,  73. 


SECT.  I.]  CRAWFORD   V.   BURKE.  517 


'<*" 


» 

v^ 


CRAWFORD  v.  BURKE. 

SUPREME  COURT  OF  THE  UNITED  STATES,  APRIL  25-NovEMBER 

7,  1904. 

[Reported  in  195  United  States,  176.] 

THIS  was  an  action  in  trover  instituted  September  10,  1897,  in  the 
Circuit  Court  of  Cook  County,  Illinois,  by  Burke  against  Crawford 
&  Valentine,  plaintiffs  in  error,  to  recover  damages  for  the  wilful  and 
fraudulent  conversion  of  certain  reversionary  interests  of  the  plaintiff 
in  .~>.~>0  shares  of  Metropolitan  Traction  stock. 

The  declaration  alleged  that  the  defendant  firm  of  Crawford  &  ^  5 
Valentine  were  stock  brokers  ;  that  plaintiff  employed  the  defendants   ^  &A 
as  his  brokers  and  agents  to  buy  and  carry  stocks  for  him  subject  to  f 

his  order;  that  defendants  had  under  their  control  certain  shares  of 
the  capital  stock  of  the  Metropolitan  Traction  Company,  which  they  y 
were  holding  as  a  pledge  and  security  for  the  amount  due  them  from 
the  plaintiff  on  said  stock  ;  that  defendants  wrongfully  and  without  his 
knowledge  sold  said  shares  of  stock,  and  wilfully  and  fraudulently,  and 
with  intent  to  cheat  and  defraud  the  plaintiff,  converted  plaintiff's  re- 
versionary interest  in  said  stock  to  their  use,  whereby  it  was  wholly 
lost. 

The  defendants  pleaded  not  guilty,  upon  which  issue  was  joined 
January  4,  1900.  The  case  rested  without  action  until  January  3, 
1901,  when  defendants  filed  their  separate  pleas  of  puis  darrein  contin- 
uance,  setting  up  that  on  April  5,  1900,  the  defendants  had  received  . 
their  discharge  in  bankruptcy,  and  that  plaintiff's  claims  were  provable 
and  not  excepted  from  the  operation  of  such  discharge. 

Notwithstanding  the  plea  of  puis  darrein  continuance,  the  plaintiff 
introduced  evidence  and  proved  the  allegations  in  his  declaration  and 
the  amount  of  damages  he  had  sustained.  Defendants  were  found  C  fr 

guilty  and  judgment  entered  against  them. 

The  judgment  of  the  Circuit  Court  was  affirmed  by  the  Appellate  r 
Court  and  by  the  Supreme  Court  of  Illinois,  201  Illinois,  581,  to  review 
which  judgment  this  writ  of  error  was  sued  out. 

Mr.  Justice  BROWN  delivered  the  opinion  of  the  court. 

[The  court  first  held  that  the  discharge  was  a  bar  if  the  claim  was    ' 
provable  and  continued:]  I//'  t")  7 

~2.  But  it  is  strenuously  insisted  by  the  plaintiff  that  a  claim  for  the 
conversion  of  personal  property  is  not  within  the  scope  of  section  17; 
because  it  is  not  a  "provable  debt"  within  the  definition  of  section 
63a.  Did  the  latter  section  stand  alone,  there  would  be  some  ground 
for  saying  that  a  claim,  though  "  founded  upon  an  open  account,  or 


518  CRAWFORD   V.    BURKE-  [CHAP.  VI. 

upon  a  contract,  express  or  implied,"  would  not  be  a  provable  debt,  if 
plaintiff  elected  to  treat  the  conversion  as  fraudulent  and  sue  in  trover, 
though  he  might  have  chosen  to  waive  the  tort  and  bring  an  action  for 
a  balance  due  on  account.  An  early  English  case,  Parker  v.  Crole, 
5  Bingham,  63,  is  cited  to  the  effect  that  the  operation  of  the  discharge 
is  determined  by  the  election  of  the  creditor  to  sue  in  assumpsit  or 
case.  A  like  ruling  was  made  in  certain  cases  under  the  bankruptcy 
acts  of  1841  and  1867.  Williamson  v.  Dickens,  27  N.  Car.  259; 
Oliver  v.  Hughes,  8  Pa.  St.  426;  JBradner  v.  Strong,  89  N.  Y. 
299,  307. 

But  we  think  that  section  63  a,  defining  provable  debts,  must  be 
read  in  connection  with  section  17,  limiting  the  operation  of  discharges, 
in  which  the  provable  character  of  claims  for  fraud  in  general  is  recog- 
nized, by  accepting  from  a  discharge  claims  for  frauds  which  have  been 
reduced  to  judgment,  or  which  were  committed  by  the  bankrupt  while 
acting  as  an  officer,  or  in  a  fiduciary  capacit}-.  If  no  fraud  could  be 
made  the  basis  of  a  provable  debt,  why  were  certain,  frauds  excepted 
from  the  operation  of  a  discharge?  We  are,  therefore,  of  opinion 
that  if  a  debt  originates  or  is  "  founded  upon  an  open  account  or  upon 
a  contract,  express  or  implied,"  it  is  provable  against  the  bankrupt's 
estate,  though  the  creditor  may  elect  to  bring  his  action  in  trover  as 
for  a  fraudulent  conversion,  instead  of  in  assumpsit  for  a  balance  due 
upon  an  open  account.  It  certainly  could  not  have  been  the  intention 
of  Congress  to  extend  the  operation  of  the  discharge  under  section  17 
to  debts  that  were  not  provable  under  section  63  a.  It  results  from  the 
construction  we  have  given  the  latter  section  that  all  debts  originating 
upon  an  open  account  or  upon  a  contract,  express  or  implied,  are 
provable,  though  plaintiff  elect  to  bring  his  action  for  fraud. 

In  the  case  under  consideration  defendants  purchased,  under  the  in- 
structions of  the  plaintiff,  certain  stocks  and  opened  an  account  with 
him,   charging  him  with  commission  and  interest,  and  crediting  him 
with   amounts   received  as  margins.     Subsequently,  and  without  tba 
knowledge  of  the  plaintiff,  they  sold  these  stocks,  and  thereby  con- 
verted them  to  their  own  use.     Without  going  into  the  details  of  the 
facts,  it  is  evident  that  the  plaintiff  might  have  sued  them  in  an  action 
on  contract,   charging  them  with  the  money  advanced  and  with  the 
value  of  the  sfock ;  or  in  an  action  of  trover  based  upon  their  con- 
version.    For  reasons  above  given,  we  do  not  think  that  his  election  to 
sue  in   tort  deprived  his  debt  of  its  provable  character,  and  that  as 
there  is  no  evidence  that  the  frauds  perpetrated  by  the  defendants 
wore  committed  by  them  in  an  official  or  fiduciary  capacity,  plaintiff's 
claim  against  them  was  discharged  by  the  proceedings  in  bankruptcy. 
The  judgment  of  the  Supreme  Court  of  Illinois  is  therefore 
reversed,    and  the  case  remanded  to  that  court  for  further 
proceedings  not  inconsistent  with  this  opinion.1 
1  Tindle  v,  Birkett,  205  U.  S.  185,  ace. 


SECT.  I.]  IN   EE    IMPEKIAL    BREWING   CO.  519 


IN  RE  IMPERIAL   BREWING   CO. 

DISTRICT  COURT  FOR  THE  WESTERN  DISTRICT  OF  MISSOURI, 
JANUARY  11,  1906. 

[Reported  in  143  Federal  Reporter,  579.] 

PHILLIPS,  District  Judge : 

On  the  21st  of  October,  1905,  the  Imperial  Brewing  Company,  a 
corporation  of  Missouri,  was  adjudged  an  involuntary  bankrupt.  The 
E.  Clements  Horst  Company,  a  corporation  of  California,  has  presented 
its  petition,  setting  out  that  on  the  26th  day  of  June,  1905,  it  entered 
into  a  contract  with  the  said  Imperial  Brewing  Company,  whereby  the 
petitioner  obligated  itself  to  sell  and  deliver  to  said  Imperial  Brewing 
Company  80  bales  of  hops,  each,  of  the  crops  of  the  years  1905  to  1910, 
inclusive,  for  which  the  said  vendee  company  obligated  itself  to  pay  to 
the  petitioner  at  the  rate  of  15  cents  per  pound,  plus  the  freight  from 
the  Pacific  Coast.  The  time  of  delivery  fixed  was  during  the  months 
of  September  to  February,  following  the  harvest  of  each  year's  crop. 
The  petition  alleges,  in  effect,  that  the  contract  was  breached  by  said 
adjudication  in  bankruptcy,  whereby  the  petitioner  was  damaged  in  the 
sum  of  $5,675,  and  it  prays  that  the  same  may  be  liquidated  and 
proved  against  the  estate  of  the  bankrupt.  The  petitioner  further 
alleges  that  the  trustees  in  bankruptcy  have  elected  not  to  keep  said 
contract  alive. 

The  question  to  be  decided  is,  did  the  adjudication  in  bankruptcy 
against  the  Imperial  Brewing  Company  of  itself  constitute  such  a 
breach  of  the  contract  as  to  mature  the  whole  executory  contract,  en- 
titling the  claimant  to  prove  and  have  allowed  against  the  estate  in 
bankruptcy  the  damages  claimed?  While  the  petition  states  that  the 
Imperial  Brewing  Company  was  permanently  disabled  from  performing 
said  contract  and  repudiated  the  same  in  all  its  parts,  and  that  it  retired 
permanently  from  business  and  was  hopelessly  insolvent,  etc.,  these 
results  are  alleged  to  follow  "  by  reason  of  said  bankruptcy  pro- 
ceedings." At  the  time  of  the  adjudication  in  bankruptcy  there 
was  no  debt  owing  by  the  bankrupt  to  the  claimant.  There  had 
been  no  delivery  or  tender  of  delivery  prior  thereto,  and  none 
since.  It  may  be  conceded  as  the  law  of  this  jurisdiction  that 
where  a  party  is  bound  from  time  to  time,  as  expressed  in  the 
contract,  to  deliver  articles  to  be  manufactured  or  products  to 
be  grown,  each  parcel  as  delivered  to  be  paid  for  at  a  certain  time 


520  IN    RE   IMPERIAL   BREWING   CO.  [CHAP.  VI. 

and  in  a  certain  way,  a  refusal  by  the  vendee  to  be  further  bound 
by  the  terms  of  the  contract  or  to  accept  further  deliveries  consti- 
tutes a  breach  of  the  contract  as  a  whole,  and  gives  the  vendor  a 
right  of  action  to  recover  the  damages  he  may  sustain  by  reason  of 
such  refusal.  In  such  case  the  positive  refusal  of  the  vendee  to  per- 
form when  tender  is  made,  or  notice  by  him  to  the  vendor  before 
maturity  of  the  time  for  delivery  that  he  will  not  carry  out  the  con- 
tract, will  release  the  vendor  from  making  any  tender,  and  entitle 
him  to  an  action  in  advance  of  the  fixed  period  for  delivery  on  his  part 
to  recover  damages  as  for  breach  of  the  whole  contract.  Eoehm  v. 
Horst,  178  U.  S.  1. 

The  sole  reliance  of  the  claimant  to  bring  it  within  this  rule  for 
such  breach  is  predicated  on  the  adjudication  in  involuntary  bank- 
ruptcy. I  am  unable  to  consent  to  the  proposition  that  such  an 
adjudication  in  bankruptcy,  ex  vi  termini,  is  in  law  tantamount 
to  a  refusal  of  the  bankrupt  to  perform,  or  that  it  thereby  per- 
manently disabled  itself  from  performance,  to  bring  the  claim  asserted 
by  petitioner  within  the  operation  of  the  rule  laid  down  in  Roehm  v. 
Horst,  supra.  As  said  by  Judge  SANBORN,  in  Watson  v.  Merrill,  136 
Fed.  363  (C.  C.  A.)  : 

"An  adjudication  in  bankruptcy  does  not  dissolve  or  terminate  con- 
tractual relations  of  the  bankrupt.  ...  Its  effect  is  to  transfer  to  the 
trustee  all  the  property  of  the  bankrupt  except  his  executory  contracts, 
and  to  vest  in  the  trustee  the  option  to  assume  or  to  renounce  these. 
It  is  the  assignment  of  the  property  of  the  bankrupt  to  the  trustees 
by  operation  of  law.  It  neither  releases  nor  absolves  the  debtor  from 
any  of  his  contracts  or  obligations,  but,  like  any  other  assignment  of 
property  by  an  obligor,  leaves  him  bound  by  his  agreements,  and 
subject  to  the  liabilities  he  has  incurred.  It  is  the  discharge  of 
the  bankrupt  alone,  not  his  adjudication,  that  releases  him  from  lia- 
bility for  provable  debts  in  consideration  of  his  surrender  of  his 
property,  and  its  distribution  among  the  creditors  who  hold 
them.  Even  the  discharge  fails  to  relieve  him  from  claims  against 
him  that  are  not  provable  in  bankruptcy,  and,  since  his  obligation 
to  pay  rents  which  are  to  accrue  after  the  filing  of  the  petition  in 
bankruptcy  may  not  be  the  basis  of  a  provable  claim,  his  liability 
for  them  is  neither  released  nor  affected  by  his  adjudication  in 
bankruptcy,  nor  by  his  discharge  from  his  probable  debts.  One 
agrees  to  pay  monthly  rents  for  the  place  of  residence  of  his  family 
or  for  his  place  of  business  or  to  render  personal  service  for  monthly 
compensation  for  a  term  of  years;  he  agrees  to  purchase  or  convey 
property;  and  he  then  becomes  insolvent  and  is  adjudicated  a  bank- 
rupt. His  obligations  and  liabilities  are  neither  terminated  nor  re- 
leased by  the  adjudication." 

Why  should  a  rule  be  applied  to  a  corporation  —  a  legal  entity  — 
different  in  this  respect  from  a  natural  person?  Section  1,  cl.  19, 
of  the  Bankruptcy  Act  declares  that  "persons"  shall  include  cor- 


SECT.  I.]  IN   RE   IMPERIAL   BREWING   CO.  521 

porations,  except  where  otherwise  specified.  An  adjudication  in 
bankruptcy  of  a  corporation  does  not  work  a  dissolution  of  the  cor- 
poration or  a  forfeiture  or  loss  of  its  franchise.  The  very  policy 
of  the  bankrupt  law  is  that  by  the  adjudication  and  the  surrender 
to  the  trustee  of  all  assets  of  the  bankrupt  then  owned  he  may 
thereby  be  manumitted  from  the  burden  of  existing  debts,  and 
by  his  unimpeded  energies  and  industry  the  better  be  enabled  to 
prosecute  his  business  and  earn  a  livelihood  and  a  competency.  Why 
should  any  different  rule  be  applied  to  a  corporation  coerced  into 
bankruptcy,  which  but  represents  the  aggregate  co-operation  and 
capital  of  a  number  of  individual  stockholders?  Its  stockholders 
may  decide  to  infuse  new  life  into  it  by  assessments  or  other- 
wise, and  its  directors  resume  business,  go  ahead,  and  perform 
any  executory  contract.  And  if  they  had  an  advantageous  con- 
tract with  the  vendor  for  providing  it  with  hops  in  its  business,  why 
should  it  not  be  left  in  position  to  avail  itself  of  the  yet  unexecuted 
contract  ? 

In  Lovell  v.  St.  Louis  Life  Insurance  Company,  111  U.  S.  264,  the 
court  held  that  where  an  insurance  company  had  terminated  its  busi- 
ness and  transferred  its  assets  and  policies  to  another  company, 
whereby  it  totally  abandoned  the  performance  of  its  contracts  by 
transferring  all  of  its  assets  and  obligations  to  the  new  company,  it 
thereby  authorized  the  insured  to  treat  the  contract  as  at  an  end  and 
to  sue  to  recover  back  the  premiums  already  paid,  although  the  time 
for  performance  of  the  obligation,  to  wit,  the  death  of  the  insured, 
had  not  arrived.  For,  as  said  by  Mr.  Justice  BRADLEY,  referring  to 
a  life  insurance  company  which  had  gone  into  liquidation,  in  Car  v. 
Hamilton,  129  U.  S.  252,  256: 

"By  that  act  the  company  becomes  civiliter  mortuus,  its  business 
is  brought  to  an  absolute  end,  and  the  policyholders  become  creditors 
to  an  amount  equal  to  the  equitable  value  of  their  respective  policies, 
and  entitled  to  participate  pro  rata  in  its  assets." 

In  re  Swift,  112  Fed.  315,  a  broker  had  made  a  contract  to  deliver 
certain  stock  to  a  customer.  It  was  held  that  he  made  it  impossible 
to  fulfill  his  agreement  to  deliver  the  stock  by  his  adjudication  in 
bankruptcy,  for  the  reason  that  it  took  the  stock  from  him  and  vested 
it,  with  all  his  property,  in  his  trustee.  But  that  is  clearly  not  this 
case. 

As  to  In  re  Pettingill  &  Co.,  137  Fed.  143,  relied  upon  by  the  peti- 
tioner, I  may  say  that  I  can  concur  in  the  syllabus  of  that  case  that 
under  the  Bankrupt  Act  the  provability  of  a  claim  depends  upon  its 
status  at  the  time  of  the  filing  of  the  petition  in  bankruptcy.  If  not 
then  a  provable  debt,  as  defined  in  the  Act,  it  cannot  be  proved, 
although  it  may  thereafter  come  within  such  definition.  "  If  a  bank- 
rupt, at  the  time  of  bankruptcy,  by  disenabling  himself  from  perform- 
ing a  particular  contract,  and  by  repudiating  its  obligation,  could  give 
the  other  party  the  right  to  maintain  at  once  a  suit  in  which  damages 


522  IN   RE    IMPERIAL   BREWING   CO.  [CHAP.  VI. 

could  be  assessed  at  law  or  in  equity,  then  such  party  may  prove  as 
a  creditor  in  bankruptcy,  on  the  ground  that  bankruptcy  is  equivalent 
of  disablement  and  repudiation." 

If,  however,  it  was  intended  to  hold  that,  as  applied  to  an  executory 
contract  for  the  sale  of  annual  crops  to  be  raised  in  successive  vears, 
where  no  breach  had  occurred  at  the  time  of  an  involuntary  adjudica- 
tion in  bankruptcy,  the  mere  act  of  such  declared  statutory  insolvency 
constituted  such  a  breach  of  the  contract  as  to  enable  the  vendor  to 
prove  up  against  the  estate  the  contingent  damages,  as  on  a  repudia- 
tion of  the  contract  by  the  vendee,  I  cannot  consent  thereto.  There 
was  no  renunciation  by  the  vendee  company  of  the  contract  after  the 
commencement  of  performance  or  renunciation  before  the  time  for 
performance  had  arrived.  Nor  has  the  vendee  deliberately  incapaci- 
tated itself  or  rendered  performance  of  the  contract  impossible  within 
the  rule  laid  down  in  Roehm  v.  Horst,  178  U.  S.  18.  As  a  discharge 
in  bankruptcy  under  section  1,  cl.  12,  means  no  more  than  "  the  re- 
lease of  a  bankrupt  from  all  of  his  debts  which  are  provable  in  bank- 
ruptcy, except  such  as  are  excepted  by  the  Act,"  and  the  claim  for 
damages  for  a  possible  future  breach  of  a  contract  is  not  a  debt 
provable  against  the  estate,  in  the  absence  of  any  refusal  on  the  part 
of  the  bankrupt  to  recognize  the  contract,  and  he  has  not  voluntarily 
or  positively  disabled  himself  from  performing  it,  where  its  perform- 
ance does  not  become  obligatory  until  after  the  adjudication  in  bank- 
ruptcy, my  conclusion  is  that  the  claim  in  question  is  not  one  provable 
in  bankruptcy. 

It  is  a  noteworthy  fact  that  under  the  Bankrupt  Acts  of  1841 
and  18fi7  the  right  was  given  to  prove  "uncertain  and  contingent 
demands"  against  the  estate.  This  provision  was  omitted  from 
the  present  Bankrupt  Act  of  1898.  In  my  judgment  this  omission 
is  significant. 

It  results  that  the  application  for  an  order  directing  the  manner  of 
the  liquidation  of  the  claim  in  question  is  denied.1 

1  In  the  following  cases  an  unmatured  conditional  obligation  was  held  not  provable. 
Re  Inman,  171  Fed.  185*  175  Fed.  312;  Re  Morgantown  Tin  Plate  Co.,  184  Fed.  109; 
Re  American  Vacuum  Cleaner  Co.,  192  Fed.  939.  Proof  was  allowed  in  Re  Adams, 
130  Fed.  788;  Re  Neff,  157  Fed.  57  (C.  C.  A.) ;  Re  Dunlap  Carpet  Co.,  163  Fed.  541  ; 
Re  Du  Quesne  Incandescent  Light  Co.,  176  Fed.  785;  Re  D.  C.  Clark  Shoe  Co.,  211 
Fed.  341. 


SECT.  L]  IN   RE   FIFE.  523 


IN  RE  FIFE. 

DISTRICT  COURT  FOR  THE  WESTERN  DISTRICT  OP  PENNSYLVANIA, 
JUNE  14,  1901. 

[Reported  in  109  Federal  Reporter,  880.] 

B.  C.  Christy,  for  bankrupt. 

E.  J.  Smart,  for  creditor. 

BUFFINGTON,  District  Judge.  This  case  arises  upon  the  return  to  a 
writ  of  habeas  corpus,  granted  on  petition  of  Robert  Fife,  the  bank- 
rupt, and  directing  the  sheriff  of  Allegheny  County  to  produce  the  said 
Fife  before  this  court,  together  with  the  cause  of  his  detention.  On 
January  8,  1901,  one  Jennie  Hawk  obtained  a  verdict  for  $1,000 
against  Fife  in  the  Court  of  Common  Pleas  No.  2  of  Allegheny  County, 
in  a  suit  brought  b}*  her  against  him  in  that  court.  That  action  was 
based  on  a  contract  to  marr}',  and  the  damages  alleged  and  recovered 
were  for  breach  by  defendant  of  such  contract.  On  April  8,  1901,  the 
defendant,  who  is  the  present  petitioner,  filed  a  petition  of  voluntary 
bankruptcy,  and  was  adjudged  bankrupt.  The  above-stated  claim  of 
Jennie  Hawk  was  scheduled  as  a  debt.  On  May  2,  1901,  a  pending 
motion  for  a  new  trial  was  discharged,  and  judgment  entered  against 
the  defendant.  On  May  31,  1901,  the  bankrupt  was  arrested  by  the 
sheriff  of  Allegheny  Count}'  on  a  writ  of  capias  ad  satisfaciendum 
issued  in  said  case,  and  placed  in  the  jail  of  Allegheny  County.  There- 
upon the  bankrupt  prayed  issue  of  a  writ  of  habeas  corpus.  To  this 
writ  the  sheriff  returns  the  capias  as  a  cause  of  detention.  General 
order  in  bankruptcy  provides  :  — 

"  If  the  petitioner  during  the  pendency  of  the  proceedings  in  bank- 
ruptcy be  arrested  or  imprisoned  upon  process  in  any  civil  action,  the 
District  Court,  upon  his  application,  may  issue  a  writ  of  habeas  corpus 
to  bring  him  before  the  court  to  ascertain  whether  such  process  has 
been  issued  for  the  collection  of  any  claim  provable  in  bankruptcy,  and 
if  so  provable  he  shall  be  discharged  ;  if  not,  he  shall  be  remanded  to 
the  custody  in  which  he  may  lawfully  be." 

We  therefore  inquire,  is  the  Hawk  claim,  to  enforce  which  the  capias 
issued,  provable  in  bankruptcy?  Section  63  of  the  present  bankrupt 
law,  under  the  heading,  "Debts  which  may  be  proved,"  provides:  — 

"•  Debts  of  the  bankrupt  ma}-  be  proved  and  allowed  against  his 
estate  which  are  ...  (4)  founded  .  .  .  upon  a  contract  express  or 
implied ;  and  (5)  founded  upon  provable  debts  reduced  to  judgment 
after  the  filing  of  the  petition  and  before  the  consideration  of  the  bank- 
rupt's application  for  a  discharge,"  etc. 

The  word  "  debt "  in  the  bankrupt  law  is  not  restricted  to  its  strict 
legal  meaning,  viz.,  "a  sum  of  money  due  by  certain  and  express 
agreement,"  but  is  defined  by  statute  (Bankr.  Law,  §  1,  cl.  11)  to 
"include  any  debt,  demand,  or  claim  provable  in  bankruptcy."  After 


524  AUDUBON   V.    SHUFELDT.  [CHAP.  VI. 

due  consideration,  we  are  of  opinion  the  claim  in  this  case  is  provable. 
It  is  based  on  contract,  and  falls  within  the  express  terras  of  the  statute 
recited  above.  The  breach  occurred  and  the  right  of  action  accrued 
before  the  petition  in  bankruptcy  was  filed.  The  plaintiff's  contractual 
claim  was  therefore  provable  under  the  fourth  provision,  above  quoted, 
and  was  subsequently  reduced  to  judgment  under  the  fifth.  Being, 
then,  of  opinion  the  detaining  process  issued  for  the  collection  of  a 
claim  provable  against  the  estate  of  Robert  Fife  in  bankruptc}',  it  is 
therefore,  in  accordance  with  General  Order  30  (32  C.  C.  A.  xxx.,  89 
Fed.  xii.),  ordered  that  said  Fife  be  discharged  from  custody.1 


AUDUBON  v.  SHUFELDT. 
SUPREMK  COURT  OF  THE  UNITED  STATES,  APRIL  8-MAY  20,   1901. 

[Reported  in  181  United  States,  575.] 

MR.  JUSTICE  GRAY  delivered  the  opinion  of  the  court. 
This  was  an  appeal  from  an  order  of  the  Supreme  Court  of  the  Dis- 
trict of  Columbia  sitting  in  bankruptcy,  granting  a  discharge  to  Robert 
W.  Shufeldt. 

Shufeldt  had  been  adjudged  a  bankrupt  April  5,  1899,  on  his  petition 
alleging  that  he  was  indebted  to  the  amount  of  14,538.33,  and  had  no 
assets  which  were  not  exempt  under  the  Bankrupt  Act  of  1898.     The 
debts  from  which  he  sought  release  were  as  follows  :  — 
Secured  debt  to  Washington  National  Banking  and  Loan 

Association $3,200.00 

Unsecured  debts  as  follows : 

Florence  Audubon $800.00 

William  H.  Smith 150.00 

Lewis  J.  Yearger 150.00 

Sundry  small  debts 238.33 

1,338.83 

"$4,538.33 

1  Under  the  early  English  bankruptcy  laws,  a  claim  which  could  properly  be  liqui- 
dated only  by  a  jury  was  not  provable  though  arising  under  a  contract.  Ex  parte 
Lingood,  1  Atk.  240;  Baker's  Case,  2  Str.  1152;  Ex  parte  Charles,  14  East,  197;  Ex 
pnrte  Harding,  5  De  G.  M.  &  G.  367  ;  Ex  parte  Todd,  6  De  G.  M.  &  G.  744.  But  32  & 
33  Viet.  c.  71,  §  31,  included  all  such  liabilities,  and  it  is  followed  by  the  Act  now  in 
force,  46  &  47  Viet.  c.  52,  §  37  ;  and  so  in  this  country  by  the  Act  of  1867,  §  19.  See 
further,  Parker  v.  Hull,  46  111.  App.  471 ;  Fowles  v.  Treadwell,  24  Me.  377;  Chandler 
v.  Winship,  6  Mass.  310;  Lothrop  v.  Reed,  13  Allen,  294;  Campbell  v.  Perkins, 
8  N.  Y.  430;  McMullin  v.  Bank,  2  Pa.  St.  343;  Sweatman's  App.,  150  Pa.  369. 

An  unliquidated  claim  which  might  have  been  liquidated  and  proved,  but  which 
was  voluntarily  withheld  until  the  time  for  proving  had  expired,  should  be  treated  as 
a  provable  debt  from  which  the  bankrupt  will  be  discharged;  and  if  an  action  is 
brought  upon  the  claim,  he  is  entitled  to  a  stay  of  proceedings  under  section  11,  pend- 
ing his  application  for  a  discharge.  Re  Hilton,  104  Fed.  Rep.  981. 


SECT.  I.]  AUDUBON   V.    SHUFELDT.  525 

Shufeldt  was,  and  had  been  for  several  years  before  filing  his  petition 
in  bankruptcy,  a  surgeon  with  the  rank  of  captain  in  the  United  States 
Arm}*,  on  the  retired  list,  and  was  in  receipt  of  a  salary  of  $175  a 
month,  his  pay  as  such  retired  officer. 

The  debt  of  $3,200  was  the  debt  of  himself  and  wife,  secured  on  land 
in  Takoma  Park,  Montgomery  County,  Maryland,  conveyed  by  him  to 
his  wife  in  March,  1898,  without  consideration. 

The  debt  of  $800  represented  arrears  of  alimony,  granted  to  his 
former  wife,  Florence  Audubon,  on  February  25,  1898,  by  a  decree  of 
the  Circuit  Court  of  Montgomery  County  in  the  State  of  Maryland,  in 
a  cause  of  divorce,  directing  him  to  pay  alimony  to  her  at  the  rate  of 
$50  a  month,  beginning  April  1,  1898.  No  part  of  that  alimony  has 
been  paid. 

About  March  1,  1898,  Shufeldt  left  Montgomery  Count}1,  and  took 
up  his  residence  in  the  city  of  Washington  in  the  District  of  Columbia. 
A  suit  in  equity  has  been  instituted  and  is  still  pending  in  the  Supreme 
Court  of  the  District  of  Columbia,  to  enforce  the  aforesaid  decree  for 
alimony,  and  to  make  him  pay  the  alimony  in  arrear. 

The  debt  of  $150  to  William  H.  Smith  was  a  promissory  note  given 
for  taking  testimony  in  the  divorce  suit  under  a  commission  from  the 
Maryland  court,  and  was  duly  assigned  to  John  W.  Hulse  before  the 
filing  of  the  petition  in  bankruptcy. 

The  debt  of  $150  to  Lewis  J.  Yeager  was  for  professional  services 
rendered  in  the  District  of  Columbia  in  the  equity  suit  aforesaid. 

The  small  debts  for  $238.33  were  contracted  for  supplies  furnished 
to  Shufeldt  and  his  family  before  the  filing  of  the  petition  in  bank- 
ruptcy. 

After  the  filing  of  the  petition  in  bankruptcy,  Florence  Audubon  filed 
in  court  her  claim  for  $800,  being  the  arrears  of  alimony,  describing  it 
as  "  a  debt "  due  by  him  to  her ;  and  voted  thereon  at  the  meeting  of 
creditors  for  the  election  of  a  trustee.  She  afterwards  filed  a  memo- 
randum directing  the  withdrawal  of  her  claim  ;  but  no  order  of  the  court 
to  that  effect  was  passed. 

It  was  objected  that  the  claim  for  alimony  was  not  a  provable  debt 
under  the  Bankrupt  Act,  and  should  be  excepted  from  the  list  of  debts 
for  which  a  discharge  in  bankruptcy  might  be  granted.  The  court  over- 
ruled the  objection,  and  granted  the  discharge,  being  of  opinion  that 
the  arrears  of  alimony  which  had  accrued  against  the  bankrupt  up  to 
the  time  of  the  adjudication  in  bankruptcy  constituted  a  provable  debt, 
in  the  sense  of  the  Bankrupt  Act  of  1898  ;  but  that  the  discharge  could 
not  affect  any  instalments  accruing  since  that  adjudication.  Florence 
Audubon  appealed  to  this  court. 

By  section  4  of  the  Bankrupt  Act  of  July  1,  1898,  c.  541,  "  any  per- 
son who  owes  debts,  except  a  corporation,  shall  be  entitled  to  the  ben- 
efits of  this  act  as  a  voluntary  bankrupt."  30  Stat.  547.  An  officer  in 
the  army  falls  within  this  description ;  and  it  may  be  that  he  is  not 
bound  to  include  his  pay  in  his  schedule.  Flarty  v.  Odium  (1790), 


526  AUDUBON   V.    SHUFELDT.  [CHAP.  VI. 

3  T.  R.  681  ;  Apthorpe  v.  Apthorpe  (1887),  12  Prob.  Div.  192.  Our 
bankrupt  act  contains  no  such  provision  as  the  English  Bankruptcy 
Act,  1883,  authorizing  the  court,  when  the  bankrupt  is  an  officer  in  the 
array  or  navy,  or  employed  in  the  civil  service,  to  order  a  portion  of 
his  pay  to  be  applied  for  the  benefit  of  his  creditors  in  bankruptcj*. 
In  re  Ward  (1897),  1  Q.  B.  266.  But  the  question  now  before  us  is  not 
whether  his  pay  can  be  reached  in  bankruptcy,  but  whether  he  is  entitled 
to  a  discharge  from  the  arrears  of  alimony  due  to  his  former  wife. 

The  Bankrupt  Act  of  1898  provides,  in  section  1,  that  a  "  discharge  " 
means  "  the  release  of  a  bankrupt  from  all  his  debts  which  are  prov- 
able in  bankru'ptc\",  except  such  as  are  excepted  by  this  act ;  and  in- 
cludes, in  section  63,  among  the  debts  which  may  be  proved  against  his 
estate,  "  a  fixed  liability,  as  evidenced  b}*  a  judgment  or  an  instrument 
in  writing,  absolutely  owing,"  at  the  time  of  the  petition  in  bankruptcy, 
whether  then  payable  or  not,  and  debts  "  founded  upon  a  contract, 
expressed  or  implied."  30  Stat.  541,  563. 

Alimony  does  not  arise  from  any  business  transaction,  but  from  the 
relation  of  marriage.  It  is  not  founded  on  contract,  express  or  implied, 
but  on  the  natural  and  legal  duty  of  the  husband  to  support  the  wife. 
The  general  obligation  to  support  is  made  specific  b}r  the  decree  of  the 
court  of  appropriate  jurisdiction.  Generally  speaking,  alimony  ma}*  be 
altered  b}T  that  court  at  any  time,  as  the  circumstances  of  the  parties 
may  require.  The  decree  of  a  court  of  one  State,  indeed,  for  the  pres- 
ent pa}'ment  of  a  definite  sum  of  money  as  alimon}',  is  a  record  which 
is  entitled  to  full  faith  and  credit  in  another  State,  and  may  therefore 
be  there  enforced  by  suit.  Barber  v.  Barber  (1858),  21  How.  582; 
Lynde  v.  Lynde  (1901),  181  U.  S.  183.  But  its  obligation  in  that  re- 
spect does  not  affect  its  nature.  In  other  respects,  alimony  cannot 
ordinarily  be  enforced  by  action  at  law,  but  only  by  application  to  the 
court  which  granted  it,  and  subject  to  the  discretion  of  that  court. 
Permanent  alimonj'  is  regarded  rather  as  a  portion  of  the  husband's 
estate  to  which  the  wife  is  equitably  entitled,  than  as  strictly  a  debt ; 
alimony  from  time  to  time  may  be  regarded  as  a  portion  of  his  current 
income  or  earnings  ;  and  the  considerations  which  affect  either  can  be 
better  weighed  by  the  court  having  jurisdiction  over  the  relation  of 
husband  and  wife,  than  b}*  a  court  of  a  different  jurisdiction. 

In  the  State  of  Maryland,  and  in  the  District  of  Columbia,  alimony 
is  granted  by  decree  of  a  court  of  equity.  Wallingford  v.  Wallingford 
(1825),  6  Har.  &  Johns.  485  ;  Crane  v.  Maginnis  (1829),  1  Gill  & 
Johns.  463  ;  Jamison  v.  Jamison  (1847),  4  Maryland  Ch.  289  ;  Tolman 
v.  Tolman  (1893),  1  App.  D.  C.  299  ;  Tolman  v.  Leonard  (1895),  6 
App.  D.  C.  224;  Alexander  v.  Alexander  (1898),  13  App.  D.  C.  334. 
And,  as  the  Court  of  Appeals  of  the  District  of  Columbia  has  more  than 
once  said :  "  The  allowance  of  alimony  is  not  in  the  nature  of  an  ab- 
solute debt.  It  is  not  unconditional  and  unchangeable.  It  ma}'  be 
changed  in  amount,  even  when  in  arrears,  upon  good  cause  shown  to 
the  court  having  jurisdiction."  6  App.  D.  C.  233,  13  App.  D.  C.  352. 


SECT.  I.]  AUDUBON   V.   SHUFELDT.  527 

Under  the  Bankrupt  Act  of  1867,  it  was  held  by  the  District  Court 
of  the  United  States  for  the  Southern  District  of  New  York,  in  an  able 
opinion  by  Judge  Choate  (which  is  believed  to  be  the  only  one  on  the 
subject  under  that  act),  that  a  claim  for  alimony,  whether  accrued  be- 
fore or  after  the  commencement  of  the  proceedings  in  bankruptcy,  was 
not  a  provable  debt  nor  barred  by  a  discharge.  In  re  Lachemayer 
(1878),  18  Nat.  Bankr.  Reg.  270 ;  s.  c.  14  Fed.  Gas.  914.  Like  deci- 
sions have  been  made  by  Judge  Brown  in  the  same  court  under  the 
present  bankrupt  act.  In  re  Shepard,  97  Fed.  Rep.  187  ;  In  re  Ander- 
son, 97  Fed.  Rep.  321.  And  the  same  result  has  been  reached  in  a 
careful  opinion  by  Judge  Lowell  in  the  District  Court  for  the  District 
of  Massachusetts.  In  re  Nowell,  99  Fed.  Rep.  931. 

In  Menzie  v.  Anderson  (1879),  65  Ind.  239,  the  Supreme  Court  of  In- 
diana held  that  a  judgment  for  alimony  was  not  a  "  debt  growing  out  of 
or  founded  upon  a  contract,  express  or  implied,"  within  the  meaning  of 
a  statute  exempting  certain  property  from  execution  for  such  a  debt. 

In  Noyes  v.  Hubbard  (1892),  64  Vt.  302,  it  was  held  by  the  Supreme 
Court  of  Vermont  that  a  decree  for  alimony,  not  being  a  judgment  for 
the  enforcement  of  any  contract,  express  or  implied,  existing  between 
the  parties  thereto,  but  for  the  enforcement  of  a  duty  in  the  perform- 
ance of  which  the  public  as  well  as  the  parties  were  interested,  was  not 
barred  by  a  discharge  in  insolvency. 

In  Romaine  'v.  Chauncey  (1892),  129  N.  Y.  566,  it  was  held  by  the 
Court  of  Appeals  of  New  York  that  alimon}-  was  an  allowance  for  sup- 
port and  maintenance,  having  no  other  purpose,  and  provided  for  no 
other  object ;  that  it  was  awarded,  not  in  payment  of  a  debt,  but  in 
performance  of  the  general  duty  of  the  husband  to  support  the  wife, 
made  specific  and  measured  by  the  decree  of  the  court ;  and  that  a 
court  of  equity  would  not  lend  its  aid  to  compel  the  appropriation  of 
alimony  to  the  payment  of  debts  contracted  by  her  before  it  was 
granted. 

In  Barclay  v.  Barclay  (1900),  184  111.  375,  it  was  adjudged  by  the 
Supreme  Court  of  Illinois  that  alimon}'  could  not  be  regarded  as  a 
debt  owing  from  husband  to  wife,  which  might  be  discharged  by  an 
order  in  bankruptcy,  whether  the  alimony  accrued  before  or  after  the 
proceedings  in  bankruptcy  ;  and  the  court  said  :  "  The  liability  to  pay 
alimony  is  not  founded  upon  a  contract,  but  is  a  penalty  imposed  for  a 
failure  to  perform  a  duty.  It  is  not  to  be  enforced  b}-  an  action  at  law 
in  the  State  where  the  decree  is  entered,  but  is  to  be  enforced  by  such 
proceedings  as  the  chancellor  may  determine  and  adopt  for  its  enforce- 
ment. It  may  be  enforced  by  imprisonment  for  contempt,  without  vio- 
lating the  constitutional  provision  prohibiting  imprisonment  for  debt. 
The  decree  for  alimony  may  be  changed  from  time  to  time  by  the  chan- 
cellor, and  there  may  be  such  circumstances  as  would  authorize  the 
chancellor  to  even  change  the  amount  to  be  paid  by  the  husband,  where 
he  is  in  arrears  in  payments  required  under  the  decree.  Hence  such 
alimony  cannot  be  regarded  as  a  debt  owing  from  the  husband  to  the 


528  IN  RE    MOORE.  [CHAP.  VI. 

wife,  and,  not  being  so,  cannot  be  discharged  by  an  order  in  the  bank- 
ruptcy court." 

In  England,  it  seems  to  be  the  law  that  alimon}'  is  neither  discharged 
nor  provable  in  bankruptcj*.  Linton  v.  Linton  (1885),  15  Q.  B.  D.  239  ; 
Hawkins  v.  Hawkins  (1894),  1  Q.  B.  25  ;  Watkins  v.  Watkins  (1896), 
Prob.  222  ;  Kerr  v.  Kerr  (1897),  2  Q.  B.  439. 

The  only  cases  brought  to  our  notice,  which  tend  to  support  the  deci- 
sion below,  are  recent  decisions  of  district  courts,  in  which  the  authori- 
ties above  cited  are  not  referred  to.  In  re  Houston,  94  Fed.  Rep.  119  ; 
In  re  Van  Orden,  96  Fed.  Rep.  86  ;  In  re  Challoner,  98  Fed.  Rep.  82. 

The  result  is  that  neither  the  alimony  in  arrear  at  the  time  of  the 
adjudication  in  bankruptcj',  nor  alimony  accruing  since  that  adjudica- 
tion, was  provable  in  bankruptcy,  or  barred  by  the  discharge.1 

The  order  granting  a  discharge  covering  arrears  of  alimony  is 
reversed,  and  the  case  remanded  for  further  proceedings  con- 
sistent with  the  opinion  of  this  court. 


IN  RE  MOORE. 

DISTRICT  COURT  FOR  THE  WESTERN  DISTRICT  OF  KENTUCKY, 
OCTOBER  21,  1901. 

[Reported  in  111  Federal  Reporter,  145.] 

THE  following  is  the  opinion  of  BAGBY,  referee  : 

On  the  13th  day  of  September,  1900,  said  John  W.  Moore  was  by 
the  grand  jury  of  the  Circuit  Court  of  McGracken  County,  Kentuckj', 
indicted  for  keeping  and  maintaining  a  nuisance  in  the  nature  of  a  dis- 
orderly house;  and  on  the  sixth  day  of  April,  1901,  he  was  by  the  ver- 
dict of  a  petit  jury  in  the  Circuit  Court  of  said  count}-  found  guilty  of 
the  charge  in  the  indictment,  and  his  fine  fixed  at  $400,  upon  which 
judgment  was  entered,  and  a  capias  pro  fine  awarded.  Thereafter,  on 
the  30th  day  of  April,  1901,  said  Moore  filed  his  petition  in  bank- 
ruptcy, and  subsequently  was  adjudicated  bankrupt.  Afterwards  the 
commonwealth  of  Kentucky  filed  herein  its  claim  for  amount  of  the 
judgment  aforesaid. 

If  the  claim  of  the  commonwealth  of  Kentucky  filed  herein  is  a  prov- 
able debt,  within  the  contemplation  of  the  bankrupt  law,  then  the  bank- 
rupt will  be  discharged  from  so  much  of  the  fine  adjudged  against  him 
by  the  State  court  as  the  bankrupt's  estate  is  insufficient  to  satisfy. 
And  it  is  not  contended  that  the  claim  is  in  any  sense  entitled  to  prior- 
ity. For  the  court  to  so  rule,  should  the  estate  of  the  bankrupt  be 

1  Even  though  by  the  local  law  a  judgment  for  alimony  is  an  absolute  debt  which 
the  court  has  no  power  to  modify,  the  Supreme  Court  has  held  that  it  is  not  a  "  debt " 
within  the  meaning  of  the  act  and  is  not  provable  or  dischargeable.  Wetmore  v.  Mar- 
koe,  196  U.  S.  68. 


SECT.  I.]  IN   EE   MOORE.  529 

insufficient  to  pay  his  creditors  in  full,  would  relieve  the  bankrupt 
from  the  fine  imposed  upon  him  as  a  punishment  by  the  State  court- 
and  to  that  extent  would  operate  as  a  pardon  of  his  offence.  I  cannot 
believe  that  such  was  the  intention  of  Congress.  It  is  a  familiar  rule 
of  construction  applicable  to  statutes  that  the  government  is  not  bound 
by  a  statute,  unless  expressly  named  therein.  Laws  are  prima  facie 
presumed  to  be  made  for  subjects  only,  and  the  government  will  not  be 
presumed  to  be  binding  itself  by  them  unless  this  intention  affirmatively 
appears.  In  England  the  crown  is  not  reached,  except  by  express 
words  or  b3"  necessary  implication,  in  any  case  where  it  would  be  ousted 
of  an}'  existing  prerogative  or  interest.  And  so  in  the  United  States 
the  States  and  national  government  are  not  bound  lnr  a  general  stat- 
utory provision  whereby  any  of  their  prerogative  rights,  titles,  or 
interests  will  be  impaired,  unless  by  express  words  or  irresistible  im- 
plication. Thus  the  statutes  of  limitation  are  no  bar  to  claims  by 
the  government  unless  the  government  is  included  by  express  words. 
23  Am.  &  Eng.  Enc.  Law,  pp.  365-367.  Section  34  of  the  bankrupt 
act  of  1867  provides  "that  a  discharge  duly  granted  under  this  act 
shall  .  .  .  release  the  bankrupt  from  all  debts,  claims,  liabilities,  and 
demands  which  were  or  might  have  been  proved  against  his  estate  in 
bankruptcy,  and  may  be  pleaded,  by  a  simple  averment,  that  on  the  day 
of  its  date  such  discharge  was  granted  to  him,  ...  as  a  full  and  com- 
plete bar  to  all  suits  brought  on  any  such  debts,  claims,  liabilities,  or 
demands."  Mr.  Bishop,  in  his  work  on  Statutoiy  Crimes  (section  103), 
referring  to  this  section,  sa3"S  it  ik  is  of  no  avail  against  a  suit  by  the 
government "  ;  and  in  this  connection  the  distinguished  author  quotes 
with  approval  U.  S.  v.  Herron,  20  Wall.  251,  22  L.  Ed.  275,  wherein 
it  is  decided  by  the  Supreme  Court  that  debts  due  to  the  United  States 
are  not  within  the  provisions  of  the  bankrupt  act  of  1867,  and  are 
not  barred  by  a  discharge  under  such  act,  chiefly  for  two  reasons : 
"  (1)  The  United  States  are  not  named  in  any  of  the  provisions  of  the 
act,  except  the  one  which  provides  as  to  all  debts  due  the  United 
States,  and  all  taxes  and  assessments  under  the  laws  thereof.  (2)  That 
many  of  the  provisions  describing  the  duties,  obligations,  and  rights  of 
creditors,  ...  if  held  to  include  the  United  States,  could  not  fail  to 
become  a  constant  and  irremediable  source  of  public  inconvenience  and 
embarrassment."  The  effect  of  a  discharge  under  section  17  of  the 
present  bankrupt  statute  has  been  very  ably  considered  in  the  case  of 
In  re  Baker  (D.  C.),  3  Am.  Bankr.  li.  101,  96  Fed.  963.  wherein  the 
court  holds  that  the  claim  of  a  State  is  not  within  the  provisions  for  the 
release  of  debts  owing  by  the  bankrupt  by  his  discharge  in  bankruptcy, 
unless  expressly  made  so,  and  declares  that  the  legislature  will  not  be 
taken  to  have  postponed  the  public  right  to  that  of  an  individual,  ex- 
cept in  cases  where  such  purpose  has  been  most  plainly  manifest,  and 
in  support  of  its  views  cites  Johnson  v.  Auditor,  78  Ky.  282,  and  the 
action  of  the  United  States  Supreme  Court  in  U.  S.  v.  Herron.  In 
reference  to  the  last-named  case  the  court  sa3's  that  the  differences  be« 


530  IN    RE   MOORE.  [CHAP.  VI. 

tween  the  acts  of  1867  and  1898  "  are  insufficient  to  indicate  an  express 
intention  on  the  part  of  Congress,  in  the  passage  of  the  present  act, 
to  establish  a  different  rule  as  to  the  devesting  of  the  government, 
national  or  State,  of  its  rights  or  remedies,  than  that  which  obtained 
under  the  act  of  1867  as  construed  by  the  Supreme  Court  in  U.  S.  v. 
Herron,  supra.  If  Congress  had  intended  that  the  bankrupt's  dis- 
charge should  operate  as  a  release  of  his  debts  owing  to  the  govern- 
ment, it  would  undoubtedly  have  so  provided  in  unmistakable  terms, 
especially  in  view  of  the  rule  of  construction  which  has  been  established 
and  so  uniformly  followed  for  so  many  years."  Whether  a  discharge 
in  bankruptcy  will  release  a  debtor  from  a  fine  came  before  Judge 
Lowell  in  the  United  States  District  Court  at  Boston.  A  sentence 
of  one  year's  imprisonment  and  a  fine  of  $500  had  been  imposed  on 
O'Donnell  for  complicity  in  the  bribery  of  a  certain  alderman  in  Lowell. 
He  had  served  his  imprisonment,  and  contended  that  his  discharge  in 
bankruptcy  exempted  him  from  the  payment  of  the  fine,  as  that  was 
one  of  the  items  included  in  his  petition  in  bankruptcy.  The  common- 
wealth contended  that  the  fine  as  well  as  the  imprisonment  was  a 
punishment,  and  that  by  relieving  him  from  its  pa\-ment,  the  court 
would  also  relieve  him  from  part  of  his  punishment.  Upon  a  writ  of 
habeas  corpus  tried  before  Judge  Lowell,  the  writ  was  refused.  See 
1  Nat.  Bankr.  N.  p.  59. 

The  views  here  contended  for  by  the  referee,  he  believes,  are  sus- 
tained by  nearly  if  not  all  the  leading  authorities  on  bankrupt  law  and 
procedure.  A  fine,  penalty,  or  costs  imposed  on  the  bankrupt  as  a 
penalty  is  not  usually  a  provable  debt.  Lowell,  Bankr.  It  seems 
clear  from  subdivision  1  of  section  63  that  all  judgments  are  provable, 
except,  perhaps,  such  as  are  imposed  in  the  nature  of  punishments, 
and  which  are  therefore  not  dischargeable.  Coll.  Bankr.  384.  Such 
judgments  entered  before  commencement  of  proceedings  in  bankruptcy 
do,  indeed,  evidence  a  fixed  liability  owing  at  the  time,  but  we  feel  con- 
fident that  they  are  not  provable.  Thej-  may  be  within  the  letter  of 
the  law,  but  are  not  within  the  spirit  of  it.  Under  all  former  acts  they 
have  been  considered  as  not  provable.  Id.  386.  It  may  be  safely 
said,  therefore,  that  a  judgment  for  a  fine,  as  distinguished  from  a 
judgment  on  a  contract,  express  or  implied,  or  for  damages,  is  not 
provable.  Branden.  Bankr.  590,  591.  In  the  absence  of  specific  pro- 
vision to  the  contrary,  it  has  been  uniformly  held  that  debts  due  the 
sovereign  are  not  released  by  a  discharge  in  bankruptcy,  nor  is  it  in 
any  wise  bound  by  a  bankruptcy  law.  Id.  266.  That  from  which 
the  bankrupt's  discharge  releases  him  is  "  all  his  provable  debts." 
Section  17  of  the  bankrupt  act.  And  section  1,  subd.  11,  of  the  act 
declares  that  "  '  debt'  shall  include  any  debt,  demand,  or  claim  prov- 
able in  bankruptcy."  From  investigation  I  am  disposed  to  hold  that 
a  judgment  to  recover  a  fine  imposed  in  the  nature  of  a  punishment  is 
not  a  debt,  claim,  or  demand  contemplated  by  the  bankrupt  law.  The 
word  "  debt,"  as  defined  by  Mr.  Blackstone,  is:  "A  sum  of  money 


SECT.  I.]  IN   RE   MOORE.  531 

due  by  certain  or  express  agreement,  as  by  a  bond  for  a  determined 
sum  ;  a  bill  or  note  ;  a  special  bargain  ;  or  rent  reserved  on  a  lease  ; 
•where  the  quantity  is  fixed  and  specific,  and  does  not  depend  upon  any 
subsequent  valuation  to  settle  it."  Referring  to  this  definition,  Mr. 
Loveland,  in  his  work  on  the  Law  and  Proceedings  in  Bankruptcy, 
says:  "  That  this  is  the  sense  in  which  '  debt'  is  used  in  this  section 
is  fairly  to  be  inferred  from  the  context.  ...  If  this  be  the  meaning 
of  '  debt '  in  this  section,  it  is  clear  that  a  judgment  for  a  fine  or  pen- 
ahy,  or  a  claim  for  alimon}',  or  any  other  claim  or  debt  not  founded 
upon  an  agreement  or  contract,  however  just  or  lawful  in  itself,  is  not 
provable  in  bankruptcy."  Loveland,  Bankr.  §  110.  "  Debt"  has  been 
held  not  to  include  a  liability  in  tort,  nor  costs  in  a  criminal  case,  nor 
a  fine.  5  Am.  &  Eng.  Enc.  Lav,  149-152,  and  notes.  In  the  case  of 
Spalding  v.  People,  7  Hill,  301,  where  a  fine  of  $3,000,  with  costs,  had 
been  imposed  as  a  penalt}"  for  a  criminal  offence,  the  court  says  :  "  The 
very  statement  of  the  case  is  therefore  enough  to  show  that  there  is  no 
color  for  the  ground  taken,  viz.  that  the  fine  is  a  debt,  within  the  bank- 
rupt law.  It  is  no  more  a  debt  than  if  it  had  been  imposed  after  con- 
viction on  an  indictment,  or  for  any  of  the  numerous  minor  offences 
within  the  calendar  of  crimes."  In  this  case  the  debtor  applied  to  the 
United  States  court  for  a  writ  of  habeas  corpus,  and  on  appeal  to  the 
Supreme  Court  of  the  United  States  it  was  held  that  the  fine  was  not 
affected  by  the  discharge.  4  How.  21,  11  L.  Ed.  858.  To  the  same 
effect  is  In  re  Sutherland,  3  N.  B.  R.  314,  Fed.  Cas.  No.  13,639,* 
where,  after  giving  the  definitions  of  "debt"  in  3  Bl.  Comm.  154,  and 
Gray  v.  Bennett,  3  Mete.  (Mass.)  522,  the  court  said  :  "  Looking  at 
the  act  or  the  nature  of  the  subject  either  separately  or  conjunctively, 
it  appears  to  me  that  a  judgment  for  a  fine,  imposed  as  a  punishment 
for  crime,  is  not  a  debt  provable  against  the  estate  of  the  bankrupt." 
This  was  a  decision  rendered  in  the  construction  of  the  bankrupt  act 
of  1841  relative  to  provable  debts  in  bankruptcy,  —  a  statute  in  this 
respect  quite  like  the  present  act. 

Counsel  insist  that  the  fine  in  this  case  having  been  reduced  to  judg- 
ment before  the  petition  in  bankruptcy  was  filed,  according  to  the 
provisions  of  subdivision  1  of  section  63,  it  then  becomes  a  debt,  and 
"  a  fixed  liability  as  evidenced  by  a  judgment,  absolutely  owing  at  the 
time  of  the  filing  of  the  petition,"  and  therefore  a  provable  debt;  that 
the  criminal  nature  of  the  liability  is  merged  in  the  judgment,  and 
thereby  becomes  a  debt.  I  do  not  concur  in  this  statement  of  the  law. 
It  appears  to  me  the  better  opinion  and  weight  of  authority  that  a 
claim  is  not  merged  in  judgment  so  far  as  to  change  the  nature  of  the 
indebtedness  out  of  which  judgment  arises.  It  is  true,  under  the  act 
of  1867  the  decisions  were  not  uniform  on  this  point;  but  after  a  time 
the  question  was  presented  to  the  Supreme  Court  of  the  United  States 
in  the  case  of  Boynton  v.  Ball,  where  the  court  held  that  the  doctrine 

1  Rex  v.  Norris,  4  Burr.  2142  ;  Bancroft  v.  Mitchell,  L.  R.  2  Q  B.  549;  Ex  partt 
Graves,  3  Ch.  App.  642,  ace.  See  B.  A.  1898,  §  57  j. 


532  RE    KINGSLEY.  [CHAP.  VL 

of  merger  did  not  apply,  and  that  the  debt  remained  the  same.  See 
also  In  re  McBryde,  3  Am.  Bankr.  R.  729,  99  Fed.  686  ;  Beers  v.  Han- 
lin  (D.  C.),  99  Fed.  695  ;  and  the  able  opinion  of  Referee  Hotchkiss  in 
Re  Finkel,  1  Am.  Bankr.  R.  333  ;  and  Coll.  Bankr.  384.  My  attention 
has  been  invited  to  the  decision  of  Judge  Jackson  in  the  case  of  In 
re  Alderson  (D.  C.),  98  Fed.  588,  in  which  a  contrary  opinion  is  ex- 
pressed. I  regret  that  after  a  careful  consideration  of  the  questions  at 
issue  in  this  case,  and  a  review  of  the  authorities  bearing  on  the  same, 
I  cannot  reach  the  conclusions  at  which  Judge  Jackson  has  arrived. 

The  exceptions  to  the  claim  of  the  commonwealth  of  Kentucky  filed 
by  the  trustee  herein  are  sustained,  and  allowance  of  the  claim  is 
refused. 


y" 


RE  KINGSLEY. 

DISTRICT   COURT  FOR  THE   DISTRICT   OF   MASSACHUSETTS, 
FEBRUARY,    1868. 

[Reported  in  1  Lowell,  216.] 

I  *  -  LOWELL,  J.  The  questions  certified  and  argued  in  this  case  are, 

'  whether  a  debt  which  is  barred  by  the  statute  of  limitations  of  Massa- 
chusetts, where  the  bankrupt  lias  resided  for  the  last  ten  j'ears,  and 
where  these  proceedings  are  had,  but  not  barred  b}-  the  statute  of  limi- 
tations of  Vermont,  where  the  creditors  reside,  and  where  both  parties 
resided  when  the  contracts  were  made,  can  be  proved  against  his  estate 
in  bankruptcy.  If  not,  whether  the  act  of  the  bankrupt  in  entering  the 
debt  upon  his  schedule  is  such  an  acknowledgment,  or  new  promise, 
as  will  revive  it. 

To  the  first  question,  it  would  seem  to  be  a  sufficient  reply  that  the 
statute  of  limitations  would  bar  a  suit  in  any  court  of  law  in  this  dis- 
trict, and  especially  in  the  Circuit  Court  of  the  United  States.  For 
courts  of  bankruptcy  in  disputed  cases  must  refer  such  questions  to  the 
other  courts,  or,  at  least,  must  decide  them  upon  the  same  principles  as 
other  courts  would.  Thus,  by  our  statute,  all  such  disputes  may  be 
tried,  either  by  prosecuting  to  final  judgment  a  suit  already  pending,  or 
where  the  dispute  first  arises  after  the  proceedings  have  been  begun,  by 
trying  it  according  to  the  course  of  the  Circuit  Court  in  actions  at  law. 
I  cannot  resist  the  conclusion  that  any  plea  which  would  be  good  at 
law  (this  being  a  legal  debt)  must  be  good  in  bankruptcy. 

But  as  the  question  has  been  decided  otherwise  by  a  judge  from 
whom  I  differ  with  great  hesitation  (Blatch.,  J.,  Ra}"'s  Case,  2  Bened. 
53),  and  has  been  argued  here  at  length,  I  will  proceed  to  show  why, 
in  my  judgment,  the  same  result  ought  to  follow  upon  principle  and 
authority,  even  if  the  mere  fact  that  the  defence  is  good  at  law  were 
not,  as  I  think  it  is,  absolutely  binding  and  decisive. 


SECT.  I.]  RE   KINGSLEY.  533 

Statutes  of  limitation  are  remedial  and  beneficial.  They  are  founded 
upon  the  sound  principle  that  lapse  of  time,  by  obscuring  the  truth, 
renders  the  administration  of  justice  uncertain,  and  that,  for  the  sake 
of  justice  as  well  as  peace,  paj'inent  ought  to  be  presumed  after  a  cer- 
tain period  has  passed.  If  the  evidence  of  debt  be  of  a  high  and  formal 
nature,  the  evidence  of  payment  may  be  expected  to  be  more  formally 
made,  and  preserved  with  moi'e  care,  than  in  mere  simple  contracts  ; 
but  even  in  such  cases,  some  period  works  a  bar.  It  is  not  a  presump- 
tion of  fact  which  may  be  rebutted  by  proof  of  non-payment,  but  a 
conclusive  presumption  of  law.  1  Greenl.  Ev.  §  16.  So  useful  and 
important  have  these  statutes  been  found,  that  courts  of  equity,  when 
not  bound  by  them,  have  adopted  them  as  rules  of  practice,  and  they 
are  so  regarded  by  the  Circuit  Court  of  the  United  States  sitting  in 
equity.  If  there  were  a  discretion  vested  in  the  courts  of  bankruptcy 
to  adopt  a  new  rule,  it  seems  to  me  they  would  follow  this  analogy. 

The  point  was  decided  in  this  way  by  Lord  Eldon  in  Ex  parte  Dewd- 
ney,  15  Ves.  479,  and  afterwards  reheard  and  reviewed  b}'  the  same 
learned  judge,  when  he  said  that  his  first  opinion  was  strongly  con- 
firmed, and  that  he  had  additional  reasons  for  it.  But  these  he  does 
not  appear  to  have  recorded,  though  he  intended  to  do  so.  See  note 
A.  to  Ex  parte  Burn,  2  Rose,  59  ;  Ex  parte  Roffey,  19  Ves.  468. 
The  reasons  which  he  has  given  are  ample,  and  have  been  accepted  in 
England,  and  his  decision,  though  opposed  to  a  ruling  of  Lord  Mans- 
field at  nisi  prius,  and  to  the  practice  of  some  of  the  ablest  commis- 
sioners of  bankrupts,  has  been  acquiesced  in,  and  has  been  repeatedly 
recognized  as  law,  though  never  again  directly  questioned.  Ex  parte 
Ross,  2  Gl.  &  J.  46,  330 ;  Gregory  v.  Hurrill,  5  B.  &  C.  341.  Besides 
the  mischiefs  which  the  statutes  of  limitations  were  intended  to  remed}T, 
and  which  would  be  aggravated  by  the  negligence  in  the  preservation 
of  evidence  which  they  are  calculated  to  induce,  and  do  induce,  after 
their  bar  is  supposed  to  shield  a  debtor  from  suit,  all  which  apply  as 
strongly  in  bankruptcy  as  in  any  other  form  of  suit,  there  would  be 
special  hardships  to  bankrupts,  or  supposed  bankrupts,  as  well  as  to 
their  creditors,  in  adopting  a  different  rule  in  bankruptcy  from  that 
which  prevails  at  law.  Thus  an  honest  debtor,  who  makes  a  satisfac- 
tory and  honorable  composition  with  all  his  known  creditors,  would  be 
liable  to  be  prosecuted  in  this  court  as  a  fraudulent  bankrupt  for  mak- 
ing that  very  composition  ;  and  this  by  a  person  who  could  not  sue  him 
in  an}'  court  in  this  district,  which  is  the  onh*  district  in  which  proceed- 
ings in  bankruptcy  could  be  taken  against  him.  So  upon  the  question 
whether  a  debtor  is  insolvent  or  not,  and  many  other  points.  The  mis- 
chiefs would  be  far-reaching  and  intolerable. 

It  is  said  that  the  bankrupt  law,  being  uniform  throughout  the  United 
States,  ought  to  be  so  worked  as  to  give  every  creditor  who  could  sue 
in  any  State  or  territory  of  the  Union  the  right  to  proceed  in  bank- 
ruptcy, and  therefore,  although  it  be  granted  that  some  limitation 
should  be  applied,  it  must  be  one  which  would  be  good  throughout  the 


534  RE   KINGSLEY.  [CHAP.  VL 

Union.  There  is  great  plausibility  in  this  argument,  but  it  is  not 
strong  enough  to  overthrow  the  arguments  on  the  other  side.  The 
right  to  sue  must  depend  on  the  forum.  Statutes  of  limitations  relate 
only  to  the  remedy,  and  cannot  have  an  extraterritorial  effect.  If 
it  were  possible  to  have  a  statute  of  this  kind,  of  general  operation 
throughout  the  jurisdiction  of  the  United  Stales,  it  might  be  very  use- 
ful, but  there  is  none  such.  The  general  rule,  therefore,  sought  to  be 
applied,  does  not  exist.  It  there  were  such  a  one,  no  doubt  this  debt 
would  be  barred  by  it,  because  it  is  a  simple  contract  debt  of  more  than 
ten  years'  standing ;  and  such  a  debt  is  barred,  I  suppose,  by  the  stat- 
utes of  every  State  and  territory,  when  applied  to  defendants  who  have 
been  within  their  jurisdiction  for  that  period.  They  do  not  bar  suits 
against  persons  not  within  their  jurisdiction,  simply  because  they  have 
nothing  to  do  with  them. 

Most  of  them,  perhaps,  following  the  common-law  rule  of  prescrip- 
tion, and  for  purposes  of  convenience,  bar  all  suits  after  twenty  years, 
and  the  result  of  holding  that  the  law  of  the  States  and  territories 
where  this  remedy  is  not  sought  shall  be  regarded,  is  simply  to  abolish 
the  statutes  of  limitations,  and  revert  to  a  common-law  prescription. 
But  the  very  fact  that  this  debt  is  not  barred  by  the  laws  of  Oregon, 
or  of  any  other  State  which  has  no  jurisdiction  of  it,  and  because  it  has 
no  jurisdiction  of  it,  shows  to  my  mind  that  the  law  of  such  a  State 
ought  not  now  to  be  applied  to  it.  In  such  a  matter  as  this,  the  courts 
of  the  United  States  must,  in  the  absence  of  a  law  of  Congress,  be 
guided  by  the  law  of  the  forum.  There  can  be  no  other  rule. 

The  argument  most  strongly  pressed  in  this  case  on  behalf  of  the 
creditor  is,  that  the  statute  of  bankruptcy  intends  that  all  debts  should 
be  discharged,  wherever  held  ;  therefore,  this  debt  must  be  discharged, 
and  if  so,  it  is  a  provable  debt,  for  only  provable  debts  are  discharged. 

There  can  be  no  doubt  that  this  is  a  provable  debt,  and  that  it  will 
be  discharged  by  the  certificate,  if  the  bankrupt  obtains  one.  All 
debts  which  by  their  nature  are  provable  are  discharged,  whether  they 
in  fact  could  be  proved  or  not.  Thus  debts  due  to  an  alien  enemy,  or 
to  one  dead  or  insane,  or  who  accidentally  failed  to  prove  or  was  not 
notified,  all  these,  and  man}'  others  that  could  be  mentioned,  would  be 
barred,  though  it  might  be  impossible  that  they  could  be  proved.  Be- 
cause this  debt  is  provable,  it  does  not  follow  that  it  can  be  proved. 
The  question  is,  whether  it  is  a  debt  at  all.  A  debt  that  has  been  paid 
cannot  be  proved,  but  it  will  be  discharged  ;  that  is  to  sa}',  the  pay- 
ment need  not  be  relied  on  after  the  certificate  has  been  obtained.  It 
would  be  a  singular  reply  to  a  plea  of  discharge  in  bankruptcy,  that 
the  debt  was  not  discharged  because  it  could  not  have  been  proved, 
and  that  it  could  not  be  proved  because  it  had  been  paid,  or  because 
the  court  of  bankruptcy  found,  rightly  or  otherwise,  that  it  had  been 
paid.  Yet,  that  is  all  that  the  rejection  of  this  proof  amounts  to.  Ap- 
plying the  law  of  the  forum,  I  find,  as  a  presumption  of  law,  that  this 
provable  debt  has  been  paid.  All  provable  debts  are  discharged ;  but 


SECT.  I.]  RE   KINGSLEY.  535 

all  supposed  debts,  to  which  a  certificate  of  discharge  would  be  a  bar, 
are  not  necessarily  provable.  The  difference  arises  in  a  case  like  this, 
from  the  fact  that  the  bankrupt  law  deals  with  the  contract  itself,  and 
discharges  it,  and  so,  necessarily,  has  a  much  wider  reach  than  the  law 
of  limitations,  or  than  rules  of  evidence  which  touch  only  the  remedy. 
The  same  thing  is  true  in  England,  and  would  be  so  in  our  States,  ex- 
cepting that  (by  construction)  the  constitution  of  the  United  States 
forbids  them  to  deal  in  this  mode  with  contracts  between  citizens  of 
different  States.  In  England,  the  statutes  of  limitations  and  of  bank- 
rupts are  passed  by  the  same  legislature  ;  but  one  has  a  much  wider 
operation  than  the  other,  so  that  a  debt  held  in  Scotland,  or  England, 
or  the  colonies,  or  abroad,  may  be  discharged,  though  the  statute 
of  limitations  may  prevent  its  being  proved.  Mr.  Christian,  whose 
opinion  and  practice  had  been  opposed  to  the  rule  as  laid  down  in 
JExparte  Dewdney,  gives  us  to  understand,  that  the  argument  that 
the  debts  would  necessarily  be  discharged,  was  not  overlooked  in  the 
discussion  of  that  case.  The  argument  that  Congress,  by  discharging 
debts  due  throughout  the  Union,  must  intend  to  adopt  all  the  statutes 
of  limitations  in  the  Union,  proves  too  much.  The  same  argument 
will  show  that  it  must  have  adopted  those  of  all  the  world,  for  debts 
due  throughout  the  world  are  discharged  in  bankruptcy,  if  the  contract 
were  to  be  performed  here.  Hunter  v.  Potts,  4  T.  R.  182 ;  Potter  v. 
Brown,  5  East,  124;  May  v.  Breed,  7  Cush.  15;  Storj-,  Conflict  of 
Law,  §  335,  &c. 

The  hardship  of  this  rule  is  much  less  than  might  at  first  appear.  It 
is  only  on  the  supposition  that  the  creditor  might  possibly  sue  his 
debtor  away  from  home  that  there  is  any  hardship  at  all.  All  that  the 
foreign  creditor  has  to  do  is  to  sue  his  debtor  at  home,  and  in  due  sea- 
son and  keep  his  debt  alive.  Our  statutes  of  limitations  makes  no 
discrimination  against  foreign  creditors,  but  in  some  respects  quite  the 
contrary;  for  if  he  has  been  beyond  seas,  he  has  a  longer  time  allowed 
him.  If  within  the  United  States,  there  is  no  reason  for  an}*  discrimi- 
nation in  his  favor.  The  complaint  of  any  creditor  that  he  might  prob- 
ably find  a  foreign  forum,  which,  because  it  is  foreign,  would  give  him 
a  remedy  which  he  has  lost  b}-  negligence  in  the  true  and  proper  forum, 
is  not  entitled  to  much  consideration.  One  case  of  practical  hardship 
may  be  put,  and  that  is  when  a  creditor  has  actually  sued  his  debtor 
away  from  borne,  and  obtained  security  by  attachment  or  otherwise, 
which  would  be  taken  away  by  the  bankruptcy,  and  yet  he  would  have 
no  right  to  prove  his  debt.  I  consider  that  the  bankrupt  law  makes  a 
sufficient  provision  for  such  a  case,  bj"  enacting  that  an  action  may 
be  prosecuted  to  final  judgment,  and  the  amount  of  the  judgment  be 
proved  in  bankruptcy.1 

»  Re  Cornwall,  9  Blatch.  114;  Re  Hardin,  1  B.  B.  395;  Re  Reed,  11  B.  R.  94; 
Capelle  v.  Trinity  Church,  11  B.  R.  536  ;  Re  Noesen,  12  B.  R.  422 ;  Re  Doty,  16  B.  R. 
202  ;  Re  Lipman,  94  Fed.  353,  ace.  Re  Ray,  1  B.  R.  203 ;  Re  Shepard,  1  B.  R.  439, 
contra.  See  also  Re  Murray,  3  B.  R.  765. 

In  Nicholas  v.  Murray,  18  B.  R.  469,  it  was  held  that  the  time  of  limitation  was  to 


536  EX  PARTE  O'NEIL.    RE  FOWLER.  [CHAP.  vi. 

I  agree  with  Judge  Blatchford,  that  the  bankrupt,  by  putting  the 
debt  upon  his  schedule,  does  not  make  a  new  promise  to  pay  it.  This 
depends  somewhat  upon  the  particular  statute  of  limitations,  and  it  has 
been  so  decided  in  Massachusetts  in  a  case  under  the  State  insolvent 
law,  so  called,  which  is  a  bankrupt  law,  though  one  limited  and  re- 
strained in  its  operation  by  the- constitution  of  the  United  States;  and 
it  is  so  upon  principle,  because  the  debtor  does  not  make  out  his 
schedule  with  any  view  to  the  payment,  but  to  the  discharge  of  his 
debts.  And,  besides,  the  creditors  have  a  right  to  plead  the  statute  as 
well  as  he,  and  they  are  not  bound  by  his  schedule.  Richardson  r. 
Thomas,  13  Gray,  381;  Roscoe  v.  Hale,  7  Gray,  274;  Stoddar  v. 
Doane,  7  Gray,  387 ;  and  see  the  cases  in  Roscoe  v.  Hale.  In  those 
cases,  it  is  true,  the  debt  was  not  barred  when  the  schedules  were 
made ;  but  if  the  schedules  were  evidence  of  a  new  promise,  two  of 
those  decisions  must  have  been  for  the  plaintiff,  because  the  schedules 
had  been  made  within  six  }-ears  before  suit  brought.  The  fact  weak- 
ens the  argument  to  this  extent,  that  it  cannot  be  said  in  this  case  that 
the  debtor  was  merely  carrying  out  his  legal  duty  in  putting  an  exist- 
ing debt  in  his  list.  He  would  not  be  so  bound  in  respect  to  this  debt, 
but  it  remains  true  that  he  did  it  diverso  intuitu. 

Proof  rejected. l 


Ex  PARTE  O'NEIL.      RE  JAMES  L.  FOWLER. 
DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS,  JULY,   1867. 

[Reported  in  1  Lowell,  163.] 

THE  register  took  evidence  touching  the  right  of  O'Neit  to  prove  the 
amount  of  a  judgment  which  he  had  obtained  against  Fowler  before  his 
bankruptcy,  and  ruled  pro  forma  that  the  question  whether  all  just 
credits  had  been  given  b}'  the  creditor  before  obtaining  his  judgment 
could  not  be  inquired  into.  He  certified  that  question  to  the  court, 
and  also  whether  interest  and  costs  could  be  proved. 

A.  Wellington,  in  opposition  to  the  proof. 

H.  M.  Morse,  Jr.,  for  O'Neil. 

LOWELL,  J.  Creditors,  whose  interests  are  affected  by  a  judgment 
against  their  debtor,  may  avoid  it  collaterally,  because  they  have  no 

be  calculated  up  to  the  time  of  proof.  But  the  prevailing  doctrine  is  that  if  the  statute 
has  not  run  at  the  time  as  of  which  the  bankrupt's  estate  is  assigned,  proof  will  not  be 
barred.  Ex  parte  Ross,  2  Glyn  &  J.  46,  330 ;  Re  Eldridge,  12  B.  R.  540  ;  Re  Graves, 
9  Fed.  Rep.  816;  Re  McKinney,  15  Fed.  Rep.  912;  Minot  v.  Thacher,  7  Met.  435; 
Willard  v.  Clarke,  7  Met.  435  ;  Collester  v.  Hailey,  6  Gray,  517  ;  Parker  v.  Sanborn, 
7  Gray,  191.  The  statute  continues  to  run,  however,  against  any  proceedings  to 
collect  a  debt  other  than  through  the  bankruptcy  court.  Richardson  v.  Thomas,  13 
Gray,  381. 

1  Re  Lipman,  94  Fed  Rep.  353,  ace. 


SECT.  I.]  EX   PARTE   6'NEIL.      RE   FOWLER.  537 

right  to  have  it  reviewed  directly.  Pierce  v.  Jackson,  6  Mass.  244 ; 
Downs  v.  Fuller,  2  Met.  135.  In  bankruptcy  the  creditors  are  in- 
terested in  contesting  a  judgment  which  is  offered  for  proof  in  compe- 
tition with  their  own  debts ;  and  I  have  no  doubt  they  may  show,  by 
any  appropriate  evidence,  that  the  judgment  is  void  or  voidable  for 
fraud  or  irregularity.  A  debtor  might  suffer  judgment  against  him  for 
the  very  purpose  of  affecting  the  proceedings  in  bankruptcy  ;  or  a 
judgment  may  be  obtained  for  a  just  debt,  but  under  circumstances 
which  would  make  it  a  fraudulent  preference.  In  all  such  cases  it  must 
be  open  to  other  creditors  to  object  to  the  judgment  when  offered  for 
proof  against  the  assets.  On  the  other  hand,  where  the  court  rendering 
the  judgment  has  jurisdiction,  and  there  has  been  no  fraud  and  no 
preference,  no  one  can  examine  into  the  consideration  of  a  judgment, 
and  show  by  evidence,  outside  of  the  record,  that  the  judgment  ought 
not  to  have  been  rendered,  or  not  for  so  large  a  sum.  While  the  debtor 
is  not  bankrupt  nor  acting  in  contemplation  of  bankruptcy  he  binds  all 
the  world  by  his  acts  and  omissions  in  relation  to  his  own  affairs ;  and 
if  he  does  not  choose  to  defend  an  action  to  which  he  has  a  legal  de- 
fence, and  of  which  he  has  had  full  notice,  his  estate  will  be  committed 
by  his  act  or  neglect,  just  as  it  would  be  by  any  improvident  bargain 
he  might  make,  or  by  any  new  promise  to  pay  a  debt  barred  by  the 
lapse  of  time  or  a  former  discharge  in  bankruptcy. 

When,  therefore,  the  judgment  is  either  void  or  voidable  as  of  right 
by  the  debtor  or  by  creditors,  it  may  be  examined  into  here  if  offered 
for  proof;  where  it  is  valid  as  against  the  debtor,  and  no  fraud  on 
creditors  is  shown,  it  is  valid  here.  If  there  be  an  intermediate  case, 
in  which  it  would  be  discretion ary  with  the  court  which  rendered  the 
judgment  to  vacate  it  upon  the  ground  of  mistake,  I  should  probably 
leave  the  assignee  to  pursue  that  remedj* ,  postponing  the  proof  in  the 
meantime. 

It  was  said  in  argument  that  the  English  practice  goes  farther  than 
this,  and  permits  the  creditors  to  inquire  into  the  consideration  of  all 
judgments.  Some  statements  as  broad  as  that  may  perhaps  be  found 
in  the  text-books  ;  but  I  suppose  the  English  practice,  whatever  it  may 
be,  is  founded  on  the  consideration  that  courts  of  equity  may  in  man}* 
cases  re-examine  judgments  at  law,  and  grant  new  trials  or  restrain 
executions.  See  Ex  parte  Bryant,  IV.  &  B.  211 ;  Ex,  parte  Marson, 
2  Dea.  245  ;  Ex  parte  Prescott,  1  M.  D.  &  DeG.  199.1  If  this  is  the 
reason  of  the  practice,  it  should  not  extend  beyond  the  limits  that  I 
have  laid  down  ;  for  a  court  of  equity  would  certainly  not  stay  an  exe- 
cution where  the  party  had  had  ample  opportunity  of  defence,  and  there 
was  no  fraud. 

There  being  in  this  case  no  offer  to  prove  fraud  or  irregularit}1,  but 

1  See  further  Ex  parte  Chatteris,  26  L.  T.  N.  8.  174;  Ex  parte  Kibble.  L.  R.  10 
Ch.  373;  Ex  parte  Banner,  17  Ch.  I).  480;  Ex  parte  Revell,  13  Q.  B.  D.  720;  Ex 
parte  Anderson,  14  Q.  B.  D.  606;  Ex  parte  Lennox,  16  Q.  B.  D.  315;  Re 
[1892]  2  Q.  B.  633;  Re  Easton,  10  Morrell,  111 ;  Re  Hawkins,  [1895]  1  Q.  B.  404. 


J 

538  MERRILL  V.   NATIONAL   BANK   OF   JACKSONVILLE.       [CHAP.  VL 

onlj'  an  excessive  assessment  of  damages,  I  must  reject  the  evidence, 
and  admit  the  proof  for  the  full  amount  of  the  judgment. 

The  costs  are  part  of  the  debt  and  can  be  proved,  judgment  having 
been  recovered  before  the  bankruptcy  ;  and  so  can  the  interest,  which, 
by  a  statute  of  Massachusetts,  all  judgments  bear. 

Debt  admitted  to  proof.1 


SECTION   II. 

SECURED  CLAIMS. 

MERRILL  v.  NATIONAL  BANK   OF  JACKSONVILLE. 

SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  20,  1898- 
FEBRUARY  20,  1899. 

[Reported  in  173   United  Slates,  131.] 

MR.  CHIEF  JUSTICE  FULLER  delivered  the  opinion  of  the  court. 

The  inquiry  on  the  merits  is,  generally  speaking,  whether  a  secured 
creditor  of  an  insolvent  national  bank  may  prove  and  receive  dividends 
upon  the  face  of  his  claim  as  it  stood  at  the  time  of  the  declaration  of 
insolvency,  without  crediting  either  his  collaterals,  or  collections  made 
therefrom  after  such  declaration,  subject  alwaj's  to  the  proviso  that 
dividends  must  cease  when  from  them  and  from  collaterals  realized,  the 
claim  has  been  paid  in  full. 

Counsel  agree  that  four  different  rules  have  been  applied  in  the  dis- 
tribution of  insolvent  estates,  and  state  them  as  follows  :  — 

"Rule  1.  The  creditor  desiring  to  participate  in  the  fund  is  required 
first  to  exhaust  his  securit}'  and  credit  the  proceeds  on  his  claim,  or  to 
credit  its  value  upon  his  claim  and  prove  for  the  balance,  it  being  op- 
tional with  him  to  surrender  his  security  and  prove  for  his  full  claim. 

"  Rule  2.  The  creditor  can  prove  for  the  full  amount,  but  shall  re- 
ceive  dividends  only  on  the  amount  due  him  at  the  time  of  distribution 
of  the  fund;  that  is,  he  is  required  to  credit  on  his  claim,  as  proved, 
all  sums  received  from  his  security,  and  may  receive  dividends  only  on 
the  balance  due  him. 

"  Rule  3.  The  creditor  shall  be  allowed  to  prove  for,  and  receive 
dividends  upon,  the  amount  due  him  at  the  time  of  proving  or  sending 
in  his  claim  to  the  official  liquidator,  being  required  to  credit  as  pay- 
ments all  the  sums  received  from  his  security  prior  thereto. 

''Rule  4.   The  creditor  can  prove  for,  and  receive  dividends  upon, 

1  Partridge  v.  Dearborn,  2  Low.  286 ;  Catlin  v.  Hoffman,  9  B.  R.  342 ;  Re  Ulfelder 
Clothing  Co.,  3  Am.  B.  R.  425  (referee),  ace.  See  also  Fowler  v.  Dillon,  1  Hughes, 
232  But  Re  Burns.  1  B.  R.  174,  McKinsey  v.  Harding,  4  B.  R.  286,  hold  that  a 
judgment  can  only  bo  attacked  in  the  court  which  rendered  it. 


SECT.  II.]      MERRILL   V.    NATIONAL   BANK    OF   JACKSONVILLE.  539 

the  full  amount  of  his  claim,  regardless  of  any  sums  received  from  his 
collateral  after  the  transfer  of  the  assets  from  the  debtor  in  insolvency, 
provided  that  he  shall  not  receive  more  than  the  full  amount  due  him." 

The  Circuit  Court  and  the  Circuit  Court  of  Appeals  held  the  fourth 
rule  applicable,  and  decreed  according!}-. 

This  was  in  accordance  with  the  decision  of  the  Circuit  Court  of  Ap- 
peals for  the  Sixth  Circuit,  in  Chemical  National  Bank  v.  Armstrong, 
16  U.  S.  App.  465,  Mr.  Justice  Brown,  Circuit  Judges  Taft  and 
Lurton,  composing  the  court.  The  opinion  was  delivered  by  Judge 
Taft,  and  discusses  the  question  on  principle  with  a  full  citation  of  the 
authorities.  We  concur  with  that  court  in  the  proposition  that  assets 
of  an  insolvent  debtor  are  held  under  insolvency  proceedings  in  trust 
for  the  benefit  of  all  his  creditors,  and  that  a  creditor  on  proof  of  his 
claim,  acquires  a  vested  interest  in  the  trust  fund;  and,  this  being 
so,  that  the  second  rule  before  mentioned  must  be  rejected,  as  it  is 
based  on  the  denial,  in  effect,  of  a  vested  interest  in  the  trust  fund, 
and  concedes  to  the  creditor  simply  a  right  to  share  in  the  distributions 
made  from  that  fund  according  to  the  amount  which  may  then  be  due 
him,  requiring  a  readjustment  of  the  basis  of  distribution  at  the  time  of 
declaring  every  dividend,  and  treating,  erroneously  as  we  think,  the 
claim  of  the  creditor  to  share  in  the  assets  of  the  debtor,  and  his  debt 
against  the  debtor,  as  if  they  were  one  and  the  same  thing. 

The  third  and  fourth  rules  concur  in  holding  that  the  creditor's  right 
to  dividends  is  to  be  determined  by  the  amount  due  him  at  the  time  his 
interest  in  the  assets  becomes  vested,  and  is  not  subject  to  subsequent 
change,  but  they  differ  as  to  the  point  of  time  when  this  occurs. 

In  Kellock's  Case.  L.  R.  3  Ch.  App.  769,  it  was  held  that  the  cred- 
itor's interest  in  the  general  fund  to  be  distributed  vested  at  the  date 
of  presenting  or  proving  his  claim  ;  and  this  rule  has  been  followed  in 
many  jurisdictions  where  statutory  provisions  have  been  construed  to 
require  an  affirmative  election  to  become  a  beneficiary  thereunder. 
For  instance,  the  cases  in  Illinois  construing  the  assignment  act  of  that 
State,  which  are  well  considered  and  full  to  the  point,  hold  that  the  in- 
terest of  each  creditor  in  the  assigned  estate  "  only  vests  in  him  when 
he  signifies  his  assent  to  the  assignment  by  filing  his  claim  with  the 
assignee."  Levy  v.  Chicago  National  Bank,  158  111.  88;  Furness  v. 
Union  National  Bank,  147  111.,  570. 

On  the  other  hand,  the  Supreme  Court  of  Pennsylvania  in  Miller's 
Appeal,  35  Penn.  St.  481,  and  many  subsequent  cases,  has  held,  neces- 
sarily in  view  of  the  statutes  of  Pennsylvania  regulating  the  matter, 
that  the  interest  vests  at  the  time  of  the  transfer  of  the  assets  in  trust. 
In  that  case  the  debtor  executed  a  general  assignment  for  the  benefit  of 
creditors.  Subsequently  the  assignor  became  entitled  to  a  legacy  which 
was  attached  by  a  creditor,  who  realized  therefrom  82,402.87.  It  was 
held  that  such  creditor  was  notwithstanding  entitled  to  a  dividend  out 
of  the  assigned  estate  on  the  full  amount  of  his  claim  at  the  time  of  the 
execution  of  the  assignment.  Mr.  Justice  Strong,  then  a  member  of 


540  MERRILL   V.   NATIONAL    BANK   OF   JACKSONVILLE.       [CHAP.  VI. 

the  State  tribunal,  said  :  "  By  the  deed  of  assignment,  the  equitable 
ownership  of  all  the  assigned  property  passed  to  the  creditors.  They 
became  joint  proprietors,  and  each  creditor  owned  such  a  proportional 
part  of  the  whole  as  the  debt  due  to  him  was  of  the  aggregate  of  the 
debts.  The  extent  of  his^interest  was  fixed  b}'  the  deed  of  trust.  It 
was,  indeed,  only  equitable  ;  but  whatever  it  was,  he  took  it  under  the 
deed,  and  it  was  only  as  a  part  owner  that  he  had  any  standing  in  court 
when  the  distribution  came  to  be  made.  ...  It  amounts  to  very  little 
to  argue  that  Miller's  recovery  of  the  $2,402.87  operated  with  precisely 
the  same  effect  as  if  a  voluntary  payment  had  been  made  by  the  as- 
signor after  his  assignment ;  that  is,  that  it  extinguished  the  debt  to 
the  amount  recovered.  No  doubt  it  did,  but  it  is  not  as  a  creditor  that  he 
is  entitled  to  a  distributive  share  of  the  trust  fund.  His  rights  are  those 
of  an  owner  by  virtue  of  the  deed  of  assignment.  The  amount  of  the 
debt  due  to  him  is  important  only  so  far  as  it  determines  the  extent  of 
his  ownership.  The  reduction  of  that  debt,  therefore,  after  the  crea- 
tion of  the  trust,  and  after  his  ownership  had  become  vested,  it  would 
seem,  must  be  immaterial." 

Differences  in  the  language  of  voluntary  assignments  and  of  statutory 
provisions  naturally  lead  to  particular  differences  in  decision,  but  the 
principle  on  which  the  third  and  fourth  rules  rest  is  the  same.  In  other 
words,  those  rules  hold,  together  with  the  first  rule,  that  the  creditor's 
right  to  dividends  is  based  on  the  amount  of  his  claims  at  the  time  his 
interest  in  the  assets  vests  by  the  statute,  or  deed  of  trust,  or  rule  of 
law,  under  which  they  are  to  be  administered. 

The  first  rule  is  commonly  known  as  the  bankruptcy  rule,  because 
enforced  by  the  bankruptcy  courts  in  the  exercise  of  their  peculiar  jur- 
isdiction, under  the  bankruptcy  acts,  over  the  property  of  the  bankrupt, 
in  virtue  of  which  creditors  holding  mortgages  or  liens  thereon  might  be 
required  to  realize  on  their  securities,  to  permit  them  to  be  sold,  to  take 
them  on  valuation,  or  to  surrender  them  altogether,  as  a  condition  of 
proving  against  the  general  assets. 

The  fourth  rule  is  that  ordinarily  laid  down  by  the  chancery  courts, 
to  the  effect  that,  as  the  trust  created  by  the  transfer  of  the  assets  by 
wo/  operation  of  law  or  otherwise,  is  a  trust  for  all  creditors,  no  creditor 
can  equitably  be  compelled  to  surrender  any  other  vested  right  he 
has  iu  the  assets  of  his  debtor  in  order  to  obtain  his  vested  right 
under  the  trust.  It  is  true  that,  in  equity,  a  creditor  having  a  lien 
upon  two  funds  ma}-  be  required  to  exhaust  one  of  them  in  aid  of 
creditors  who  can  only  resort  to  the  other,  but  this  will  not  be  done 
when  it  trenches  on  the  rights  or  operates  to  the  prejudice  of  the  party 
entitled  to  the  double  fund.  Story,  Eq.  Jur.  (13th  ed.)  §  633;  In  re 
Bates,  118  III.,  524.  And  it  is  well  established  that  in  marshalling 
assets,  as  respects  creditors,  no  part  of  his  security  can  be  taken  from 
a  secured  creditor  until  he  is  completely  satisfied.  Leading  Cases  in 
Equity,  White  &  Tudor,  Vol.  II.,  Part  1,  4th  Amer.  ed.,  pp.  258,  322. 

In  Greenwood  v,  Taylor,  1   Russ.  &  Myl.  185,  Sir  John  Leach  ap- 


SECT.  II.]      MERRILL   V.   NATIONAL   BANK   OF   JACKSONVILLE.  541 

plied  the  bankruptcy  rule  in  the  administration  of  a  decedent's  estate, 
and  remarked  that  the  rule  was  "  not  founded,  as  has  been  argued, 
upon  the  peculiar  jurisdiction  in  bankruptcy,  but  rests  upon  the  gen- 
eral principles  of  a  court  of  equity  in  the  administration  of  assets  ; " 
and  referred  to  the  doctrine  requiring  a  creditor  having  two  funds  as 
security,  one  of  which  he  shares  with  others,  to  resort  to  his  sole 
security  first.  But  Greenwood  v.  Taylor  was  in  effect  overruled  by 
Lord  Cottenham  in  Mason  v.  Bogg,  2  Myl.  &  Cr.  443,  488,  and  ex- 
pressly so  by  the  Court  of  Appeal  in  Chancery  in  Kellock's  case  ;  and 
the  application  of  the  bankruptcy  rule  rejected. 

In  Kellock's  Case,  Lord  Justice  W.  Page  Wood,  soon  afterwards 
Lord  Chancellor  Hatherly,  said  :  — 

"  Now  in  the  case  of  proceedings  with  reference  to  the  administration 
of  the  estates  of  deceased  persons,  Lord  Cottenham  put  the  point  very 
clearly,  and  said :  *  A  mortgagee  has  a  double  security.  He  has  a 
right  to  proceed  against  both,  and  to  make  the  best  he  can  of  both.  Why 
he  should  be  deprived  of  this  right  because  the  debtor  dies,  and  dies  in- 
solvent, is  not  very  eas}'  to  see.' 

"  Mr.  De  Gex,  who  argued  this  case  very  ably,  sa}rs  that  the  whole 
case  is  altered  by  the  insolvency.  But  where  do  we  find  such  a  rule 
established,  and  on  what  principle  can  such  a  rule  be  founded,  as  that 
where  a  mortgagor  is  insolvent  the  contract  between  him  and  his  mort- 
gagee is  to  be  treated  as  altered  in  a  way  prejudicial  to  the  mortgagee, 
and  that  the  mortgagee  is  bound  to  realize  his  security  before  proceed- 
ing with  his  personal  demand. 

"  It  was  strongly  pressed  upon  us,  and  the  argument  succeeded  before 
Sir  J.  Leach  in  Greenwood  v.  Taylor,  that  the  practice  in  bankruptcy 
furnishes  a  precedent  which  ought  to  be  followed.  But  the  answer  to 
that  is,  that  this  court  is  not  to  depart  from  its  own  established  practice, 
and  vary  the  nature  of  the  contract  between  mortgagor  and  mortgagee 
by  analog}'  to  a  rule  which  has  been  adopted  by  a  court  having  a  peculiar 
jurisdiction,  established  for  administering  the  property  of  traders  unable 
to  meet  their  engagements,  which  property  that  court  found  it  proper  and 
right  to  distribute  in  a  particular  manner,  different  from  the  mode  in 
which  it  would  have  been  dealt  with  in  the  Court  of  Chancery.  .  .  .  We 
are  asked  to  alter  the  contract  between  the  parties  by  depriving  the 
secured  creditor  of  one  of  his  remedies,  namely,  the  right  of  standing 
upon  bis  securities  until  they  are  redeemed." 

And  it  was  the  established  rule  in  England  prior  to  the  Judicature 
Act,  38  and  39  Viet.,  c.  77,  that  in  an  administration  suit  a  mort- 
gagee might  prove  his  whole  debt  and  afterwards  realize  his  secur- 
ity for  the  difference,  and  so  as  to  creditors  with  security,  where  a 
company  was  being  wound  up  under  the  Companies  Act  of  1862. 
1  Daniel's  Ch.  Pr.  384  ;  In  re  Withernsea  Brick  Works,  L.  R.  16  Ch. 
Div.  337. 

Certainly  the  giving  of  collateral  does  not  operate  of  itself  as  a  pay- 
ment or  satisfaction  either  of  the  debt  or  any  part  of  it,  and  the 


542  MKRRILL   V.   NATIONAL   BANK   OF   JACKSONVILLE.       [CHAP.  VL 

debtor  who  has  given  collateral  security,  remains  debtor,  notwithstand- 
ing, to  the  full  amount  of  the  debt ;  and  so  in  Lewis  v.  United  States, 
92  U.  S.  618,  623,  it  was  ruled  that:  "It  is  a  settled  principle  of 
equity  that  a  creditor  holding  collaterals  is  not  bound  to  apply  them 
before  enforcing  his  direct  remedies  against  the  debtor." 

Doubtless  the  title  to  collaterals  pledged  for  the  security  of  a  debt 
vests  in  the  pledgee  so  far  as  necessary  to  accomplish  that  purpose, 
but  the  obligation  to  which  the  collaterals  are  subsidiary  remains  the 
same.  The  creditor  can  sue,  recover  judgment,  and  collect  from  the 
debtor's  general  property,  and  apply  the  proceeds  of  the  collateral  to 
any  balance  which  may  remain.  Insolvency  proceedings  shift  the 
creditor's  remedy  to  the  interest  in  the  assets.  As  between  debtor  and 
creditor,  moneys  received  on  collaterals  are  applicable  by  way  of  pay- 
ment, but  as  under  the  equity  rule  the  creditor's  rights  in  the  trust 
fund  are  established  when  the  fund  is  created,  collections  subsequently 
made  from,  or  payments  subsequentl}"  made  on,  collateral,  cannot  oper- 
ate to  change  the  relations  between  the  creditor  and  his  co-creditors  in 
respect  of  their  rights  in  the  fund. 

As  Judge  Taft  points  out,  it  is  because  of  the  distinction  between 
the  right  in  personam  and  the  right  in  rein  that  interest  is  onl}'  added 
up  to  the  date  of  insolvencj',  although  after  the  claims  as  allowed  are 
paid  in  full,  interest  accruing  may  then  be  paid  before  distribution  to 
stockholders. 

In  short,  the  secured  creditor  is  not  to  be  cut  off  from  his  right  in 
the  common  fund  because  he  has  taken  security  which  his  co-creditors 
have  not.  Of  course,  he  cannot  go  beyond  payment,  and  surplus  assets 
or  so  much  of  his  dividends  as  are  unnecessary  to  pay  him  must  be  ap- 
plied to  the  benefit  of  the  other  creditors.  And  while  the  unsecured 
creditors  are  entitled  to  be  substituted  as  far  as  possible  to  the  rights 
of  secured  creditors,  the  latter  are  entitled  to  retain  their  securities 
until  the  indebtedness  due  them  is  extinguished. 

The  contractual  relations  between  borrower  and  lender,  pledging 
collatei'als,  remain,  as  is  said  by  the  New  York  Court  of  Appeals  in 
People  v.  Remington,  121  N.  Y.  328,  336,  "  unchanged  when  insol- 
vency has  brought  the  general  estate  of  the  debtor  within  the  jurisdic- 
tion of  a  court  of  equity  for  administration  and  settlement."  The 
creditor  looks  to  the  debtor  to  repay  the  money  borrowed,  and  to  the 
collateral  to  accomplish  this  in  whole  or  in  part,  and  he  cannot  be  de- 
prived either  of  what  his  debtor's  general  ability  to  pay  may  yield,  or 
of  the  particular  security  he  has  taken. 

We  cannot  concur  in  the  view  expressed  b}*  Chief  Justice  Parker  in 
Amory^i  Francis,  16  Mass.  308,  311,  (1820)  that  "the  property 
pledged  is  in  fact  securit}'  for  no  more  of  the  debt  than  its  value  will 
amount  to ;  and  for  all  the  rest  the  creditor  relies  upon  the  personal 
credit  of  his  debtor,  in  the  same  manner  he  would  for  the  whole,  if  no 
security  were  taken." 

We  think  the  collateral  is  security  for  the  whole  debt  and  every  part 


SECT.  II.]      MERRILL   V.   NATIONAL   BANK   OF   JACKSONVILLE.  543 

of  it,  and  is  as  applicable  to  any  balance  that  remains  after  payment 
from  other  sources  as  to  the  original  amount  due  ;  and  that  the  assump- 
tion is  unreasonable  that  the  creditor  does  not  rely  on  the  responsibility 
of  his  debtor  according  to  his  promise. 

The  ruling  in  Amory  v.  Francis  was  disapproved,  shortly  after  it  was 
made,  by  the  Supreme  Court  of  New  Hampshire,  in  Moses  v.  Ranlet, 
2  N.  H.  488,  (1822)  Woodbury  J.,  afterwards  Mr.  Justice  Wood  bury  of 
this  court,  delivering  the  opinion,  and  is  rejected  by  the  preponderance 
of  decisions  in  this  country,  which  sustain  the  conclusion  that  a  creditor, 
with  collateral,  is  not  on  that  account  to  be  deprived  of  the  right  to 
prove  for  his  full  claim  against  an  insolvent  estate.  Man}-  of  the  cases 
are  referred  to  in  Bank  v.  Armstrong,  and  these  and  others  given  in 
the  Encyclo.  of  Law  and  Eq.  2d  ed.  vol.  3,  p.  141. 

Does  the  legislation  in  respect  to  the  administration  of  national 
banks  require  the  application  of  the  bankruptcy  rule  ?  If  not,  we  are 
of  opinion  that  the  equity  rule  was  properly  applied  in  this  case. 

By  section  5234  of  the  Revised  Statutes,  and  section  1  of  the  act  of 
June  30,  1876,  c.  156,  19  Stat.  63,  the  Comptroller  of  the  Currency  is 
authorized  to  appoint  a  receiver  to  close  up  the  affairs  of  a  national 
banking  association  when  it  has  failed  to  redeem  its  circulation  notes, 
when  presented  for  payment ;  or  has  been  dissolved  and  its  charter  for- 
feited ;  or  has  allowed  a  judgment  to  remain  against  it  unpaid  for 
thirty  days ;  or  whenever  the  Comptroller  shall  have  become  satisfied 
of  its  insolvenc}'  after  examining  its  affairs.  Such  receiver  is  to  take 
possession  of  its  effects,  liquidate  its  assets,  and  pay  the  money  derived 
therefrom  to  the  Treasurer  of  the  United  States. 

Section  5235  of  the  Revised  Statutes  requires  the  Comptroller,  after 
appointing  such  receiver,  to  give  notice  by  newspaper  advertisement 
for  three  consecutive  months,  "  calling  on  all  persons  who  may  have 
claims  against  such  association  to  present  the  same,  and  to  make  legal 
proof  thereof." 

By  section  5242,  transfers  of  its  property  by  a  national  banking 
association  after  the  commission  of  an  act  of  insolvency,  or  in  con- 
templation thereof,  to  prevent  distribution  of  its  assets  in  the  manner 
provided  by  the  chapter  of  which  that  section  forms  a  part,  or  with  a 
view  to  preferring  any  creditor  except  in  payment  of  its  circulating 
notes,  are  declared  to  be  null  and  void. 

Section  5236  is  as  follows  :  — 

"  From  time  to  time,  after  full  provision  has  first  been  made  for  re- 
funding to  the  United  States  any  deficiency  in  redeeming  the  notes  of 
such  association,  the  Comptroller  shall  make  a  ratable  dividend  of  the 
money  so  paid  over  to  him  by  such  receiver  on  all  such  claims  as  may 
have  been  proved  to  his  satisfaction,  or  adjudicated  in  a  court  of  com- 
petent jurisdiction,  and,  as  the  proceeds  of  the  assets  of  such  associa- 
tion are  paid  over  to  him,  shall  make  further  dividends  on  all  claims 
previously  proved  or  adjudicated;  and  the  remainder  of  the  proceeds, 
if  any,  shall  be  paid  over  to  the  shareholders  of  such  association,  or 


544  MERRILL   V.   NATIONAL   BANK   OF   JACKSONVILLE.       [CHAP.  Vt 

their  legal  representatives,  in  proportion  to  the  stock  by  them  respect- 
ively held." 

In  Cook  County  National  Bank  v.  United  States,  107  U.  S.  445,  it 
was  ruled  that  the  statute  furnished  a  complete  code  for  the  distribution 
of  the  effects  of  an  insolvent  national  bank  ;  that  its  provisions  are  not 
to  be  departed  from  ;  and  that  the  bankrupt  law  does  not  govern  distri- 
bution thereunder.  The  question ,  now  before  us  was  not  treated  as 
involved  and  was  not  decided,  but  the  case  is  in  harmony  with  Bank  v. 
Colby,  21  Wall.  609,  and  Scott  v.  Armstrong,  146  U.  S.  499,  which 
proceed  on  the  view  that  all  rights,  legal  or  equitable,  existing  at  the 
time  of  the  commission  of  the  act  of  insolvency  which  led  to  the  ap- 
pointment of  the  receiver,  other  than  those  created  by  preference  for- 
bidden by  section  5242,  are  preserved  ;  and  that  no  additional  right 
can  thereafter  be  created,  either  by  voluntary  or  involuntary  proceed- 
ings. The  distribution  is  to  be  "  ratable"  on  the  claims  as  proved  or 
adjudicated,  that  is,  on  one  rule  of  proportion  applicable  to  all  alike. 
In  order  to  be  "  ratable  "  the  claims  must  manifestly  be  estimated  as 
of  the  same  point  of  time,  and  that  date  has  been  adjudged  to  be  the 
date  of  the  declaration  of  insolvenc}-.  White  v.  Knox,  111  U.  S.  784. * 

The  set-off  took  effect  as  of  the  date  of  the  declaration  of  insolvencj-, 
but  outstanding  collaterals  are  not  payment,  and  the  statute  does  not 
make  their  surrender  a  condition  to  the  receipt  by  the  creditor  of  his 
share  in  the  assets. 

The  rule  in  bankruptc}*  went  upon  the  principle  of  election  ;  that  is 
to  say,  the  secured  creditor  "  was  not  allowed  to  prove  his  whole  debt, 
unless  he  gave  up  any  security  held  by  him  on  the  estate  against  which 
he  sought  to  prove.  He  might  realize  his  security  himself  if  he  had 
power  to  do  so,  or  he  might  apph'  to  have  it  realized  by  the  Court  of 
Bankruptcy,  or  by  some  other  court  having  competent  jurisdiction,  and 
might  prove  for  any  deficiency  of  the  proceeds  to  satisfy  his  demand  ; 
but  if  he  neglected  to  do  this  and  proved  for  his  whole  debt,  he  was 
bound  to  give  up  his  securit}7."  Robson,  Law  Bank,  336.  But  it  was 
only  under  bankrupt  laws  that  such  election  could  be  compelled.  Tay- 
loe  v.  Thompson,  5  Pet.  358,  369. 

And  we  are  unable  to  accept  the  suggestion  that  compulsion  under 
those  laws  was  the  result  merely  of  the  provision  for  ratable  distribu- 
tion, which  onl}'  operated  to  prevent  preferences,  and  to  make  all  kinds 
of  estates,  both  real  and  personal,  assets  for  the  payment  of  debts,  and 
to  put  specialty  and  simple  contract  creditors  on  the  same  footing ; 
and  so  give  to  all  creditors  the  right  to  come  upon  the  common  fund. 
Equalit}1  between  them  was  equity,  but  that  was  not  inconsistent  with 
the  common  law  rule  awarding  to  diligence,  prior  to  insolvenc\-,  its 
appropriate  reward  ;  or  with  conceding  the  validity  of  prior  contract 
rights. 

We  repeat  that  it  appears  to  us  that  the  secured  creditor  is  a  creditor 
to  the  full  amount  due  him,  when  the  insolvency  is  declared,  just  as 

f  The  court  here  stated  the  cases  of  White  v.  Knox  and  Scott  v.  Armstrong. 


SECT.  II.]       MERRILL   V.    NATIONAL   BANK   OF   JACKSONVILLE.  545 

much  as  the  unsecured  creditor  is,  and  cannot  be  subjected  to  a  differ- 
ent rule.  And  as  the  basis  on  which  a\l  creditors  are  to  ,draw  dividends 
is  the  amount  of  their  claims  at  the  time  of  the  declaration  of  insol- 
vency, it  necessarily  results,  for  the  purpose  of  fixing  that  basis,  that  it 
is  immaterial  what  collateral  any  particular  creditor  may  have.  The 
secured  creditor  cannot  be  charged  with  the  estimated  value  of  the  col- 
lateral, or  be  compelled  to  exhaust  it  before  enforcing  his  direct  rem- 
edies against  the  debtor,  or  to  surrender  it  as  a  condition  thereto, 
though  the  receiver  may  redeem  or  be  subrogated  as  circumstances 
may  require. 

Whatever  Congress  ma}-  be  authorized  to  enact  by  reason  of  posses- 
sing the  power  to  pass  uniform  laws  on  the  subject  of  bankruptcies,  it 
is  very  clear  that  it  did  not  intend  to  impinge  upon  contracts  exist- 
ing between  creditors  and  debtors,  by  anything  prescribed  in  reference 
to  the  administration  of  the  assets  of  insolvent  national  banks.  Yet  it 
is  obvious  that  the  bankruptcy  rule  converts  what  on  its  face  gives  the 
secured  creditor  an  equal  right  with  other  creditors  into  a  preference 
against  him,  and  hence  takes  away  a  right  which  lie  already  had. 
This  a  court  of  equity  should  never  do,  unless  required  by  statute  at 
the  time  the  indebtedness  was  created. 

The  requirement  of  equality  of  distribution  among  creditors  by  the 
national  banking  act  involves  no  invasion  of  prior  contract  rights  of 
an}*  such  creditors,  and  ought  not  to  be  construed  as  having,  or  being 
intended  to  have,  such  a  result. 

Our  conclusion  is  that  the  claims  of  creditors  are  to  be  deter- 
ininedfls  of  {.he  date  of  the  declaration  of  insolvency,  irrespective  of 
the~question  whether  particular  creditors  have  security  or  not.  When 
secured  creditors  have  received  payment  in  full,  their  right  to  dividends, 
and  their  right  to  retain  their  securities  cease,  but  collections  therefrom---  " 
lire  not  otherwise  material.  Insolvency  gives  unsecured  creditors  no 
"greater  rights  than  they  had  before,  though  through  redemption  or  sub- 
rogation or  the  realization  of  a  surplus  they  may  be  benefited. 

The  case  was  rightly  decided  by  the  Circuit  Court  of  Appeals  ;  its 
decree  in  No.  54  is 

Affirmed,  and  the  decree  of  the   Circuit  Court  entered  July  27, 
1896,   in  pursuance  of  the  mandate  of  that  court,  also  af- 
firmed, and  the  case  remanded  accordingly.1 

1  Mr.  Justice  WHITE  delivered  a  dissenting  opinion,  with  which  Justices  HARLAV 
and  MCKENNA  concurred.  In  the  course  of  this  the  decisions  in  the  State  courts  were 
collected  and  classified  as  follows :  — 

"  As  the  case  before  us  is  to  be  controlled  by  the  act  of  Congress,  it  would  appear 
unnecessary  to  advert  to  State  decisions  construing  local  statutes;  but  inasmuch  as 
those  decisions  were  referred  to  and  cited  as  authority,  I  will  briefly  notice  them. 
Thev  divide  themselves  into  four  classes:  1.  Those  which  maintain  that  where  ratable 
distribution  is  required,  the  creditor  must  account  for  his  security  before  proving. 
Amory  v.  Francis,  (1820)  16  Mass.  308;  Farnum  ».  Boutelle,  (1847)  13  Met.  159; 
Vanderveer  v.  Conover,  (1838)  1  Hair.  487;  Bell  v.  Fleming's  Executors,  (1858) 
1  Beasley,  (12  N.  J.  Kq.)  13,  25  ;  Whittaker  v.  Amwell  National  Bank,  (1894)  52  N.  J 
Eq.  400;  Fields  v.  Creditors  of  Wheatley,  (1853)  1  Sneed,  (Tenn.)  351;  Winton  v. 


546  MERRILL   V.    NATIONAL   BANK   OF   JACKSONVILLE.      [CHAP.  VI. 

Eltlridge,  (1859)  3  Head,  (Tenn.)  361;  Wurtz  v.  Hart,  (1862)  13  Iowa,  SIC;  Searle, 
Kx'or,  v.  Brumback,  Assignee,  (1862)  4  Western  Law  Monthly,  (Ohio)  330;  In  re 
Fnisch,  (1892)  5  Wash.  344;  National  Union  Bank  i?.  National  Mechanics  Bank, 
(1895)  80  Maryland,  371;  American  National  Bank  v.  Branch,  (1896)  57  Kansas, 
327  ;  Investment  Co.  v.  Richmond  National  Bank,  (1897)  58  Kansas,  414.  2.  Those 
oases  which,  on  the  contrary,  decide  that  to  allow  the  creditor  to  prove  for  his  whole 
claim  without  deduction  of  security,  is  not  incompatible  with  ratable  distribution,  and 
hold  that  the  security  need  not  be  taken  into  account.  Findlay  v.  Hosmer,  (1817) 
2  Conn.  350;  Moses  v.  Ranlet,  (1822)  2  N.  H.  488  ;  West  v.  Bank  of  Rutland,  (1847; 
19  Vermont,  403;  Walker  v.  Baxter,  (1854)  26  Vermont,  710,  714;  In  the  matter  of 
Bates,  (1886)  118  Illinois,  524;  Furness  v.  Union  National  Bank,  (1893)  147  Illinois, 
570;  Levy  v.  Chicago  National  Bank,  (1895)  158  Illinois,  88;  Allen  v.  Danielson, 
(1837)  15  R.  I.,  480;  Greener.  Jackson  Bank,  (1895)  18  R.  I.  779;  People  v.  Reming- 
ton, (1890)  121  N.  Y.  328 ;  Third  National  Bank  of  Detroit  v.  Haug,  (1890)  82  Michi- 
gan, 607  ;  Kellogg  v.  Miller,  (1892)  22  Oregon,  406:  Winston  v.  Biggs,  (1895)  117  N. 
C.  206.  3.  Those  cases  which,  whilst  seemingly  denying  the  obligation  of  the  secured 
creditor  to  account  for  his  security,  yet,  practically,  work  out  a  contrary  result  by  re- 
quiring deduction  upon  collaterals  as  collected,  and  affording  remedies  to  compel 
prompt  realization ^of  collaterals.  In  re  Estate  of  McCune,  (1882)  76  Missouri,  200; 
State  V.Nebraska  Savings  Bank,  (1894)  40  Nebraska,  342 ;  Jamison  v.  Alder-Goldman 
Commission  Co.,  (1894)  59  Arkansas,  548,  552;  Philadelphia  Warehouse  Co.  v.  Annis- 
ton  Pipe  Works,  (1895)  106  Alabama,  357  ;  Erie  v.  Lane,  (1896)  22  Colorado,  273. 
4.  Those  which  originated  in  purely  local  statutes  and  which  hold  that  the  secured 
creditor  can  prove  for  the  whole  amount  without  reference  to  either  the  bankruptcy 
or  the  chancery  rule.  Shunk'sand  Freedley's  Appeals,  (1845)  2  Penn.  St.  304;  Morris 
17.  Olwine,  (1854)  22  Penn.  St.  441,  442;  Keim's  Appeal,  (1856)  27  Penn.  St.  42; 
Miller's  Appeal,  (1860)  35  Penn.  St.  481  ;  Patten's  Appeal,  (1863)  45  Penn.  St.  151. 
And  see  a  reference  to  the  cases  in  Pennsylvania,  in  Boyer's  Appeal,  (1894)  163  Penn. 
St.  143.  I  supplement  the  compilation  heretofore  made  by  a  reference  to  some  State 
statutes  and  decisions  referring  to  statutes  which  expressly  provide  that  the  claimants 
upon  an  insolvent  estate  can  only  prove  for  the  balance  due,  after  deduction  of  any 
security  held.  Indiana:  —  Combs  v.  Union  Trust  Co.,  146  Ind.  688,  691 ;  Kentucky  : 
—  Statutes,  1894,  (Barbour  &  Carroll's  ed.)  c.  7,  §  74,  p.  193;  Bank  of  Louisville  v. 
Lockridge,  92  Kentucky,  472 ;  Massachusetts:  —  Act  of  April  23,  1838,  c.  163,  §3; 
General  Statutes,  1860,  ch.  118,  §  27;  Michigan: — 2  How.  St.  §  8824,  p.  2156  ;  Min- 
nesota :  —  By  statute  March  8,  1860,  the  security  is  made  the  primary  fund,  to  which 
resort  must  be  had  before  a  personal  judgment  can  be  obtained  against  the  debtor  for 
a  deficit,  Swifts.  Fletcher,  6  Minn.  550;  New  Hampshire:  —  Laws  1862,  ch.  2594; 
South  Carolina :  —  Piester  v.  Piester,  22  S.  C.  139;  Wheat  v.  Dingle,  32  S.  C.  473; 
Texas:  — Civil  Stats.  1897,  art.  83;  Acts  1879,  ch.  53,  §  13 ;  Willis  v.  Holland,  (1896) 
36  S.  W.  Rep.  329." 

Mr.  Justice  GRAY  also  delivered  a  dissenting  opinion,  in  the  course  of  which  he 
said  :  — 

"  The  English  bankrupt  acts  in  force  at  the  time  of  the  Declaration  of  Independ- 
ence, so  far  as  they  touched  the  distribution  of  a  bankrupt's  estate  among  his  creditors, 
were  the  statute  of  13  Eliz.  (1571)  c.  7,  §  2,  which  directed  the  estate  to  be  applied  to 
the  '  true  satisfaction  and  payment  of  the  said  creditors,  that  is  to  say,  to  every  of  the 
said  creditors  a  portion,  rate  and  rate  like,  according  to  the  quantity  of  his  or  their 
debts ;'  and  the  stMtute  of  21  James  L,  (1623)  c.  19,  §  8  (or  §  9),  which  made  more 
specific  provisions  against  allowing  any  creditors,  whether  '  having  security '  or  not 
to  prove  '  for  any  more  than  a  ratable  part  of  their  just  and  due  debts  with  the  other 
creditors  of  the  said  bankrupt.'  As  appears  on  the  face  of  this  provision,  the  word 
'security'  was  evidently  there  used,  not  as  including  a  mortgage  or  other  instrument 
executed  by  the  debtor  by  way  of  pledging  part  of  his  property  as  collateral  security 
for  the  payment  of  a  debt,  but  merely  as  designating  a  bond  or  writing  which  was  evi- 
dence of  the  debt  itself  as  a  direct  personal  obligation  ;  and  the  objects  of  the  provision 
would  appear  to  have  been  to  put  all  debts,  whether  by  specialty  or  by  simple  contract, 
upon  an  equal  footing  in  the  ratable  distribution  of  a  bankrupt's  estate,  and  to  perrai* 


SECT.  II.]      MEKRILL   V.   NATIONAL    BANK   OF   JACKSONVILLE.  547 

the  real  amount  only  of  any  debt,  and  not  any  larger  sum  named  in  a  bond  or  other 
speciality,  to  be  proved  in  bankruptcy.  4  Statutes  of  the  Realm,  539,  1228 ;  2  Cooke's 
Bankrupt  Laws,  (4th  ed.)  [18]  [33];  1  Ib.  119;  Bac.  Ab.  Obligations,  A;  3  Bl.  Com. 
439. 

"  Neither  of  those  statutes  contained  any  provision  whatever  for  deducting  the 
value  of  collateral  security  and  proving  the  rest  of  the  debt.  Yet,  from  the  earliest 
period  of  which  there  are  any  reported  cases,  it  was  uniformly  held  —  without  vouch- 
ing in  any  provision  of  the  bankrupt  acts,  other  than  those  directing  a  ratable  distri- 
bution among  all  the  creditors  —  and  had  long  before  the  American  Revolution  become 
the  settled  practice  in  the  Court  of  Chancery,  that  a  creditor  could  not  retain  collateral 
security  received  by  him  from  the  bankrupt  and  prove  for  his  whole  debt,  but  must 
have  his  collateral  security  sold  and  prove  for  the  rest  of  the  debt  only.  The  authori- 
ties upon  this  point  are  collected  in  the  opinion  of  Mr.  Justice  White,  173  U.  S.  153. 

"  After  the  American  Revolution,  the  provision  of  the  statute  of  James  I.  was 
thrice  re-enacted,  with  little  modification.  Stats.  5  Geo.  IV.,  (1824)  c.  98,  §  103 ; 
6  Geo.  IV.,  (1825)  c.  16,  §  108;  12  &  13  Viet.  (1849)  c.  106,  §  184.  But  the  rule  estab- 
lished by  the  decisions  and  practice  of  the  Court  of  Chancery,  as  to  the  proof  of 
secured  debts,  was  never  expressly  recognized  in  any  of  the  English  bankrupt  acts 
until  1869,  when  provisions  to  that  effect  were  inserted  in  the  statute  of  32  &  33  Viet, 
c.  71,  §  40.  And  there  is  no  trace  of  a  different  rule  in  England,  in  proceedings  in 
equity  for  the  distribution  of  the  estate  of  any  insolvent  debtor  or  corporation,  until 
more  than  sixty  years  after  the  Declaration  of  Independence.  Amory  v.  Francis, 
(1820)  16  Mass.  308,  311  ;  Greenwood  v.  Taylor,  (1830)  1  Russ.  &  Myl.  185;  Mason  v. 
Bogg,  (1837)  2  Myl.  &  Cr.  443.  In  1868,  indeed,  the  Court  of  Chancery  declined  to 
apply  the  bankruptcy  rule  to  proceedings  under  the  wiuding-up  acts.  Kellock's  Case, 
L.  R.  3  Ch.  769.  But  Parliament,  by  the  Judicature  Acts  of  1873  and  1875,  applied 
that  rule  to  such  proceedings.  Stats.  36  aud  37  Viet.  c.  66,  §  25  (1)  ;  38  &  39  Viet. 
c.  77,  §  10.  And  Sir  George  Jessel,  M.  R.,  has  pointed  out  the  absurdity  of  having 
different  rules  in  the  cases  of  living  and  of  dead  bankrupts.  In  re  Hopkins,  (1881)  18 
Ch.  D.  370,  377. 

"The  first  bankrupt  act  of  the  United  States,  enacted  in  1800,  was  in  great  part 
copied  from  the  earlier  bankrupt  acts  of  England,  and  condensed  the  provisions, 
above  mentioned,  of  the  statutes  of  Elizabeth  and  of  James  I.,  in  this  form  :  '  In  the 
distribution  of  the  bankrupt's  effects,  there  shall  be  paid  to  every  of  the  creditors  a 
portion-rate,  according  to  the  amount  of  their  respective  debts,  so  that  every  creditor 
having  security  for  his  debt  by  judgment,  statute,  recognizance  or  specialty,  or  having 
an  attachment  under  any  of  the  laws  of  the  individual  States,  or  of  the  United  States, 
on  the  estate  of  such  bankrupt,  (provided  there  be  no  execution  executed  upon  any  of 
the  real  or  personal  estate  of  such  bankrupt,  before  the  time  he  or  she  became  bank- 
rupts,) shall  not  be  relieved  upon  any  such  judgment,  statute,  recognizance,  specialty 
or  attachment,  for  more  than  a  ratable  part  of  his  debt  with  the  other  creditors  of  the 
bankrupt.'  Act  of  April  4,  1800,  c.  19,  §  31 ;  2  Stat.  30.  That  provision  must  have 
received  the  same  construction  that  had  been  given  by  the  English  judges  to  the 
statutes  therein  re-enacted.  Tucker  v.  Oxley,  (1809)  5  Cranch,  34,  42;  Scott  p.  Arm- 
strong, (1892)  146  U.  S.  493,  511. 

"The  bankrupt  act  of  1841,  which  is  well  known  to  have  been  drafted  by  Mr. 
Justice  Story,  omitted  that  section,  and  made  no  specific  provision  whatever  as  to  the 
proof  of  secured  debts;  but  simply  provided  that  '  all  creditors  coming  in  and  proving 
their  debts  under  such  bankruptcy,  in  the  manner  hereinafter  prescribed,  the  same 
being  bonafide  debts,  shall  be  entitled  to  share  in  the  bankrupt's  property  ami  effects, 
pro  ruta,  without  any  priority  or  preference  whatsoever,  except  only  for  debts  due  by 
such  bankrupt  to  the  United  States,  and  for  all  debts  due  by  him  to  persons  who,  by 
the  laws  of  the  United  States  have  a  preference,  in  consequence  of  having  paid  moneys 
as  his  sureties,  which  shall  be  first  paid  out  of  the  assets.'  Act  of  August  19,  1841, 
c.  9,  §  5  ;  5  Stat.  444. 

"  Yet  Mr.  Justice  Story,  both  in  the  Circuit  Court  and  in  this  court,  laid  it  down, 
as  an  undoubted  rule,  that  a  secured  creditor  could  prove  only  for  the  rest  of  the  debt 
after  deducting  the  value  of  the  security  given  him  by  the  bankrupt  himself  of  his  own 


548  IN   KE   ROUSE,   HAZARD   &   CO.  [CHAP.  VI. 


SECTION  III. 
CLAIMS  HAVING  PRIORITY. 

IN  RE  ROUSE,  HAZARD  &  CO.  (INCORPORATED). 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  SEVENTH  CIRCUIT,  JANUARY  3, 

1899. 

[Reported  in  91  Federal  Reporter,  97.] 

BEFORE  WOODS,  JENKINS,  and  SHOW  ALTER,  Circuit  Judges. 

JENKINS,  Circuit  Judge,  delivered  the  opinion  of  the  court. 

[This  was  a  petition  to  review  an  order  of  the  District  Court  for  the 
Northern  District  of  Illinois,  allowing  priority  to  certain  claims  for 
labor  against  the  bankrupt  corporation.  These  claims  had  accrued 
within  three  months  prior  to  August  31,  1898,  when  the  bankrupt  cor- 
poration made  a  general  assignment  for  the  benefit  of  creditors.  The 
petition  in  bankruptcy  was  filed  November  1,  1823.  By  the  law  of 
Illinois,  wages  for  labor  earned  within  three  months  prior  to  the  making 
of  a  general  assignment  are  given  priority  over  other  claims.] 

The  question  here  is  one  of  construction  of  the  bankrupt  law  of  the 
United  States,  and  is  this  :  Whether  the  Congress,  having  spoken  by  a 
particular  provision  (section  64  b,  cl.  4)  with  respect  to  the  priority  to 
be  allowed  labor  claimants,  and  having  subsequently  in  the  same  Act 
(section  64  b,  cl.  5)  spoken  generally  with  respect  to  the  recognition  of 
the  priorities  allowed  by  the  laws  of  the  State  or  the  United  States, 
the  latter  general  provision  overrides  or  enlarges  the  prior  special  pro- 
vision. The  bankrupt  act,  03-  its  terms,  went  into  full  force  and  effect 
upon  its  passage,  July  1,  1898,  and,  notwithstanding  the  provision  that 
no  voluntary  petition  should  be  filed  within  one  month  of  the  passage 
of  the  Act,  and  that  no  petition  for  involuntary  bankruptcy  should  be 
filed  within  four  months  of  the  passage  of  the  Act,  the  bankrupt  law 
was  operative  from  the  date  of  its  passage,  and  was  effective  from  that 
date  to  supersede  the  insolvency  laws  of  the  several  States.  Manu- 
facturing Co.  v.  Hamilton  (Mass.),  51  N.  E.  529;  Blake  v.  Francis- 
Valentine  Co.,  89  Fed.  691 ;  In  re  Bruss-Ritter  Co.  (E.  D.  Wis.),  90 

property.     In  re  Babcock,  3  Story,  (1844)  393,  399,  400  ;  In  re  Christy,  (1845)  3  How. 
293,  315. 

"The  omission  by  that  eminent  jurist,  when  framing  the  act  of  1841,  of  all  specific 
provisions  on  the  subject  as  unnecessary,  and  his  repeated  judicial  declarations,  after 
he  had  been  habitually  administering  that  act  for  three  or  four  years,  recognizing  that 
rule  as  still  iu  force,  compel  the  inference  that  a  general  enactment  for  the  ratable 
distribution  of  the  estate  of  an  insolvent  among  all  the  creditors  had  the  effect  of  pre- 
venting any  individual  creditor,  while  retaining  collateral  security  on  part  of  tho 
estate,  from  proving  for  his  whole  debt." 


SECT.  III.]  IN   RE   ROUSE,   HAZARD   &   CO.  549 

Fed.  651.  It  is  probably  true  that  the  Congress  could  constitutionally 
in  the  bankrupt  act  recognize  the  varying  systems  of  the,  several  States 
with  respect  to  exemptions  of  propert}-  (Darling  v.  Berrj-,  4  McCrary, 
407,  13  Fed.  659)  ;  and  it  may  be  possible  that  like  recognition  of  the 
varying  laws  of  the  several  States  in  regard  to  priority  of  paj'ment  of 
debts  would  not  impair  or  destroy  the  uniformity  of  the  system  of 
bankruptcy  authorized  by  the  Constitution.  We  do  not  find  occasion 
now  to  consider  that  subject.  The  question  recurs,  What  was  the  real 
intention  of  the  Congress  as  expressed  in  clauses  4  and  5  of  section 
646?  In  the  first  clause  Congress  addresses  itself  to  the  subject  of 
labor  claims,  and  particularly  provides  that  all  wages  that  have  been 
earned  within  three  months  before  the  date  of  the  commencement  of 
proceedings  in  bankruptcy,  not  to  exceed  $300  to  each  claimant,  shall 
be  awarded  priority  of  payment.  It  recognized,  it  must  be  assumed, 
the  various  provisions  of  law  in  the  several  States  with  respect  to  this 
subject.  It  found  them  not  to  be  in  harmony,  and  in  some  States,  as, 
notably,  in  Illinois,  the  laws  upon  that  subject  not  to  be  consistent 
with  each  other.  It  found  limitation  as  to  time  different  in  the  different 
States.  It  found  that  in  some  of  the  States  priority  of  payment  was 
unlimited  as  to  amount,  and  in  some  limited  to  so  small  a  sum  as 
$50.  With  this  divergence  within  its  knowledge,  the  Congress  spoke 
to  the  subject  specially  and  particularly,  and  limited  the  amount  to 
$500,  and  as  to  time,  to  wages  earned  within  three  months  before  the 
commencement  of  proceedings.  Can,  then,  the  general  provision  of 
the  law  following  immediately  thereafter,  allowing  priority  of  payment 
for  all  debts  owing  to  any  person  who,  by  the  laws  of  the  States  or  the 
United  States,  is  entitled  to  priority,  be  held  to  enlarge  the  prior  pro- 
vision so  that  the  statute  should  be  read  that,  in  any  event,  the  laborer 
should  be  entitled  to  priority  of  payment  in  respect  of  wages  earned 
within  three  months  prior  to  proceedings,  and  in  amount  not  exceeding 
$t!00,  and  that  wherever  the  laws  of  the  State  of  the  residence  of  the 
bankrupt  grant  the  laborer  priority  of  payment  without  limit  as  to  time 
or  amount,  or  impose  a  limit  in  excess  of  that  imposed  by  the  bankrupt 
act,  he  shall  be  entitled  to  a  further  priority  in  payment  according  to 
the  law  of  the  particular  State?  We  think  not.  It  is  not  to  be  sup- 
posed, unless  the  language  of  the  Act  clearly  so  speaks,  that  the  Con- 
gress intended  that  in  the  administration  of  the  Act  there  should  be  a 
marked  contrariety  in  the  priority  of  payment  of  labor  claims  dependent 
upon  locality.  It  is  an  elemental'}*  principle  of  construction  that  where 
there  are  in  one  Act  or  several  Acts  contemporaneously  passed  specific 
provisions  relating  to  a  particular  subject,  they  will  govern  in  respect 
to  that  subject  as  against  general  provisions  contained  in  the  same 
Act. 

[The  court  here  referred  to  Sutherland,  Statutory  Construction,  §  158; 
State  v.  Inhabitants  of  Trenton,  38  N.  J.  L.  67  ;  Taylor  v.  Corporation 
of  Oldham,  4  Ch.  D.  398 ;  Attorney-General  v.  Lamplough,  3  Ex.  D. 
214;  Dwarris,  Statutes,  p.  658;  Felt  v.  Felt,  19  Wia.  193;  States 


550  IN   RE  WESTLUND.  [CHAP.  VI. 

Goetze,   22  Wis.  363,  365  ;  Hoey  v.  Gilroy,  129  N.  Y.  138 ;   Stockett 
v.  Bird's  Adm.,  18  Md.  484.] 

Our  conclusion  is  that  Congress  having  spoken  specificalby  to  the 
subject  of  priority  of  pa3*ment  of  labor  claims,  what  it  has  said  upon 
that  subject  expresses  the  particular  intent  of  the  lawmaking  power, 
and  that  provision  is  not  to  be  tolled  or  enlarged  by  any  general  prior 
or  subsequent  provision  in  that  Act.  That  which  is  given  in  particular 
is  not  affected  by  general  words.  So  that  the  statute  providing  for  the 
priority  of  payment  of  debts  referred  to  in  clause  5  must  be  construed 
to  mean  other  debts  and  different  debts  than  those  specified  in  clause  4. 
We  are  not  unmindful  of  the  particular  hardship  which  our  conclusion, 
it  is  said,  will  work  out  here.  It  arises  from  the  fact  that  under  the 
law  proceedings  in  bankruptcy,  except  by  voluntary  act  of  the  bank- 
rupt, could  not  be  commenced  in  time  to  fully  protect  these  labor 
claimants.  We  regret  that  this  is  so.  It  is  a  misfortune  arising  from 
the  provisions  of  the  Act,  but  to  remedy  this  particular  wrong  we  can- 
not override  a  recognized  canon  of  construction  of  statute  law. 


IN  RE  WESTLUND. 
DISTRICT  COURT  FOR  THE  DISTRICT  OF  MINNESOTA,  FEBRUARY  14,  1900. 

[Reported  in  99  Federal  Reporter,  399.] 

LOCHREN,  District  Judge.  In  this  case  creditors  who  were  owners 
by  assignment  of  claims  for  labor  performed  for  the  bankrupt  within 
three  months  before  the  date  of  the  commencement  of  the  bankruptcy 
proceedings,  each  separate  claim  so  assigned  being  less  than  $300, 
duly  filed  and  made  proof  of  such  claims ;  and  the  question  certified 
by  the  referee  for  decision  is  whether  such  claims  so  owned  are  debts 
having  priority.  The  answer  to  this  question  depends  upon  the  proper 
construction  of  that  clause  of  section  64  b  of  the  bankruptcy  act  which 
gives  priority  to  "  wages  due  to  workmen,  clerks,  or  servants,  which 
have  been  earned  within  three  months  before  the  date  of  the  commence- 
ment of  proceedings,  not  to  exceed  three  hundred  dollars  to  each  claim- 
ant." This  language  requires  that  a  debt  for  wages,  to  have  priority, 
must  be  due  to  the  wage-earner.  If  the  claimant  entitled  to  priority 
might  be  an  assignee,  there  would  be  no  reason  why  such  claimant 
should  be  restricted  to  $300,  as  he  might  be  the  owner  of  many  small 
claims,  each  less  than  that  amount,  but  aggregating  more.  The  clause 
referred  to  is  intended  to  favor  the  class  whose  reliance  for  the  main- 
tenance of  themselves  and  families  is  generally  upon  their  wages  as 
earned.  There  is  nothing  in  the  nature  of  security  or  lien  for  the  pa}-- 
ment  of  the  wages  which  could  pass  to  an  assignee.  No  right  to  pri- 
ority arises  or  exists  until  the  proceeding  in  bankruptcy  is  instituted, 


SECT.  IV.]  EX   PARTE   WAGSTAFF.  551 

and  then  the  wages  assigned  are  not  "  due  to  workmen,  clerks,  or  ser- 
vants," but  to  their  assignees,  and  are  outside  the  language  of  this 
clause.  If  debts  for  wages  so  assigned  can  be  allowed  priority,  they 
ma}'  come  in  conflict,  or  at  least  in  competition,  with  other  claims  foi 
wages  due  and  owing  to  the  same  workmen,  clerks,  or  servants,  earned 
within  the  same  three  months,  and  lessen  the  laments,  if  the  assets 
will  not  pay  in  full  all  debts  having  priority.  It  must  be  held,  there- 
fore, that  debts  of  a  bankrupt  for  labor  and  services  which  at  the 
commencement  of  the  proceedings  in  bankruptcy  are  not  due  to  the 
workmen,  clerks,  or  servants,  but  to  assignees,  have  no  priority.1 


SECTION   IV. 
MUTUAL  DEBTS  AND  CREDITS. 

Ex  PARTE  WAGSTAFF. 
CHANCERY,  AUGUST  11,  1806. 

[Reported  in  13  Vesey,  65.] 

THE  petition  stated,  that  the  petitioners  had  various  dealings  in  trade 
with  James  and  William  Kershaw :  the  petitioners  being  in  the  habit 
of  purchasing  goods  from  the  Kershaws,  receiving  remittances  for  their 
use,  and  accepting  bills  drawn  on  the  petitioners ;  by  means  of  which 
several  dealings  mutual  accounts  subsisted  between  them.  On  the  29th 
June,  1804,  a  Commission  of  Bankruptcy  issued  against  James  and 
William  Kershaw.  At  that  time  the  petitioners  were  in  advance  for 
money  paid  by  them  for  the  use  of  the  bankrupts,  exceeding  the  amount 
of  their  remittances,  received  and  applied  to  their  credit,  with  interest, 
the  sum  of  £2,277  17s.  6<7.  The  petitioners  were  also  at  that  time 
under  acceptance  of  a  bill  of  exchange,  drawn  on  them  by  the  bank- 
rupts, but  not  due  at  the  date  of  the  Commission,  to  the  amount  of 
£399  6s. ;  which  bill  became  due,  and  was  paid  by  the  petitioners  on 
the  5th  of  July,  1804.  The  petitioners  were  at  the  time  of  the  bank- 
ruptcy indebted  to  the  bankrupts  for  goods  sold  the  sum  of  £360  ;  the 
stipulated  credit  for  which  had  not  then  expired  ;  the  goods  having 
been  purchased  on  credit,  to  expire  on  the  21st  of  May,  1805.  The 
petitioners  were  also  indebted  to  the  bankrupts  on  a  prior  account  for 
money  had  and  received  to  their  use,  the  sum  of  £3  13s.  3d. 

The  petitioners  applied  to  prove  the  sum  of  £2,277  17s.  6rf. :  but 
the  assignees  contended  that  the  two  sums  of  £360  and  £3  13s.  3d. 
ought  to  be  deducted ;  and  that  the  amount  of  the  bill,  not  being  due 
or  paid  till  after  the  bankruptcy,  could  not  be  debited  in  account 

1  Shropshire  v.  Bush,  204  U.  S.  186,  contra. 


552  EX   PARTE   WHITING.      RE   DOW.  [CHAP.  VI. 

against  the  bankrupts ;  but  was  a  debt  accruing  after  the  bankruptcy, 
and  not  barred  by  the  certificate.  The  petition  was  therefore  pre- 
sented ;  insisting,  that  the  amount  of  that  bill,  though  not  due  till  after 
the  bankruptcy,  was  an  item  of  credit  to  the  bankrupts  in  the  mutual 
account  between  them  and  the  petitioners;  and,  that  the  petitioners 
had  a  right  to  apply  in  account  hi  the  nature  of  set-off  what  was  due 
from  them  to  the  bankrupts  for  goods  and  otherwise  to  their  protec- 
tion, against  and  towards  the  extinguishment  of  their  acceptance,  and 
to  prove  the  sum  of  £2,277  17s.  60?. ;  and  praying  accordingly. 

The  Lord  CHANCELLOR  [ERSKINE].  The  bankrupt,  being  a  creditor 
of  the  petitioners,  drew  a  bill  upon  them  before  the  bankruptcy  ;  which 
bill  the}-  accept.  Is  not  that  a  mutual  account :  mutual  credit  to  all 
intents  and  purposes? 

The  order  directed  the  proof  to  be  admitted.1 


Ex  PARTE  WHITING.    RE  DOW  ET  AL. 

DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS,  MARCH,  1876. 
[Reported  in  2  Lowell,  472.] 

LOWELL,  J.  The  facts,  as  I  understand  them,  are,  that  in  1874  the 
firm  of  Dow,  Hunt,  &  Co.,  the  bankrupts,  of  which  firm  A.  C.  Gushing 
was  a  partner,  borrowed  $3,000  of  a  savings-bank,  for  which  the}-,  as  a 
firm,  and  Gushing  and  the  petitioner,  Whiting,  individually,  gave  their 
joint  and  several  promissory  note.  This  note  the  petitioner  paid  to  the 
bank  in  full,  after  the  failure  of  Dow,  Hunt,  &  Co.,  but  before  their 
bankruptcy.  The  parties  differ  in  their  mode  of  looking  at  this  note. 
The  petition  represents- it  as  signed  by  Dow,  Hunt,  &  Co.,  and  Gush- 
ing, as  principals,  and  by  the  petitioner  as  surety,  while  the  answer 
represents  it  to  be  the  note  of  Dow,  Hunt,  &  Co.  as  principals,  and 
Gushing  and  the  petitioner  as  co-sureties,  and  alleges  that  the  money 
went  to  the  firm  exclusively.  Upon  the  face  of  the  note  I  should 
suppose  that  the  answer  puts  the  contract  correctly,  and  I  shall  so 

1  Ex  parte  Prescot,  1  Atk.  230 ;  Sheldon  v.  Rothschild,  8  Taunt.  156 ;  Smith  n. 
Hodson.4  T.  R.  211  ;  Atkinson  v.  Elliott,  7  T.  R.  378;  Alsager  v.  Currie,  12  M.  &  W. 
751  ;  Marks  r.  Barker,  1  Wash.  C.  C.  178  ;  Catlin  v.  Foster,  1  Sawy.  37  ;  Drake  v. 
Rollo,  3  Biss.  273;  Ex  parte  Howard  Bank,  2  Low.  487  ;  Re  City  Bank,  6  B  R.  71 ;  Re 
Kalter,  2  N.  B.  N.  264  (referee),  ace. 

Except  in  bankruptcy,  no  right  of  set-off  is  allowed  in  England  unless  both  debts 
are  due,  even  though  one  of  the  parties  is  insolvent.  Re  Commercial  Bank  of  India, 
L.  R.  1  Ch.  538.  In  this  country  the  set-off  is  generally  allowed  where  the  debt  clue 
from  the  insolvent  has  matured,  though  the  debt  due  to  him  has  not.  Where,  how- 
ever, the  debt  due  from  the  insolvent  has  not  matured,  the  weight  of  authority  is  against 
the  allowance  of  a  set-off,  but  there  are  recent  decisions  which  strongly  support  the 
bankruptcy  rule  as  one  of  general  application  where  one  of  the  parties  is  insolvent 
See  17  L.  R.  A.  456  n.,  and  an  essay  by  James  L.  Bishop  in  1  Columbia  L.  Rev.  391. 


SECT.  IV.]  EX   PARTE    WHITING.      HE   DOW.  553 

consider  the  case  for  the  purposes  of  the  present  decision,  though  it  is 
a  point  upon  which  evidence  outside  of  the  note  is  of 'course  admis- 
sible. In  1875,  the  petitioner  lent  $1,396  to  the  firm  of  Dow,  Hunt,  & 
Co. ,  and  Gushing  transferred  to  him  eight  shares  of  the  capital  stock  of 
the  Hingham  Steamboat  Compan}'  as  collateral  security,  which  Whiting 
promised  to  return  on  payment  of  the  $1,396  with  interest.  This  debt 
•was  overdue  and  unpaid  at  the  time  of  the  bankruptcy.  This  stock 
is  worth  more  than  $1,396  and  interest,  and  the  assignee  has  offered 
to  pay  the  amount  of  that  debt  upon  a  reconveyance  of  the  stock.  The 
question  is,  whether  Mr.  Whiting  can  hold  the  surplus  proceeds  of  the 
shares  by  way  of  set-off  against  Cushing's  other  debt  to  him,  for  con- 
tribution as  co-surety  of  the  note  above  mentioned. 

I  have  had  occasion  more  than  once  to  look  carefully  at  the  cases 
on  the  subject  of  mutual  credit  in  bankruptcy  ;  and  while  the  decisions 
in  this  country  agree  entire!}-,  as  far  as  they  go,  with  those  made  in 
England,  the  subject  has  been  more  fully  considered  in  that  country, 
as  is  natural,  the  bankrupt  law  having  been  in  force  there  for  a  much 
greater  length  of  time.  The  leading  cases  on  the  subject  are  Rose  v. 
Hart,  8  Taunt.  499  ;  Young  v.  Bank  of  Bengal,  1  Moore,  P.  C.  150, 
much  more  full}'  reported  1  Deacon,  622  ;  Naoroji  u.  Chartered  Bank 
of  India,  L.  R.  3  C.  P.  444  ;  Astley  v.  Gurney,  L.  R.  4  C.  P.  (Ex.  Ch.) 
714.  All  those  cases  should  be  studied.  The  result  of  them  is,  that 
a  creditor  who,  at  the  time  of  the  bankruptcy,  has  in  his  hands  goods 
or  chattels  of  the  bankrupt  with  a  power  of  sale,  or  choses  in  action 
with  a  power  of  collection,  may  sell  those  goods  or  collect  those  claims, 
and  set  them  off  against  the  debt  the  bankrupt  owes  him  ;  and  this, 
although  the  power  to  sell  or  to  collect  were  revocable  by  the  bank- 
rupt before  his  bankruptcy  ;  or,  in  other  words,  the  occurrence  of  bank- 
ruptcy in  such  cases  gives  a  sort  of  lien  which  did  not  exist  before. 
This  has  been  the  law  ever  since  Rose  v.  Hart,  8  Taunt.  499.  Before 
that  decision,  it  was  admitted  even  in  cases  where  there  was  no  power 
of  sale.  Young  v.  Bank  of  Bengal,  ubi  supra,  adds  this  limitation,  and 
this  onl}',  that  if  the  right  to  sell  the  pledge  does  not  arise  until  after 
the  bankruptcy,  then  there  is  no  set-off  for  the  surplus  ;  for  the  reason 
that  the  assignee  might  redeem  instantly  before  an}*  such  power  ex- 
isted, and  the  creditors  shall  not  be  prejudiced  by  any  failure  or  neglect 
to  redeem  ;  or,  to  put  it  in  another  way,  that  the  rights  of  the  parties 
are  fixed  at  the  date  of  the  bankruptcy.. 

I  have  not  overlooked  the  fact  that  in  Young  v.  Bank  of  Bengal  a 
good  deal  is  said  about  the  agreement  to  return  the  surplus.  In  this 
case  there  is  an  agreement  to  return  the  shares  when  the  debt  is  paid. 
I  do  not  consider  the  case  cited  to  stand  on  this  ground,  but  on  that 
already  mentioned,  that  the  credit  did  not  exist  at  the  date  of  the  bank- 
ruptcy. See  that  case  explained  by  Parkc,  B.,one  of  the  judges  who 
decided  it,  in  Alsager  v.  Currie,  12  M.  &•  W.  751,  and  by  the  judges  in 
the  late  cases  above  cited.  I  apprehend  that,  when  shares  are  con- 
veyed in  this  way  as  collateral  security,  the  law  implies  a  promise  to 


554  EX   PARTE  WHITING.      RE   DOW.  [CHAP.  VL 

return  them  on  the  payment  of  the  debt,  and  its  expression  cannot 
properly  affect  the  case.  In  all  the  cases  there  has  been  either  an 
express  or  an  implied  promise  by  the  agent  or  other  person  having  the 
property,  that  he  would  faithfully  account  for  it  and  pay  over  its  pro- 
ceeds ;  but  this  does  not  prevent  a  set-off  in  bankruptc}-.  And  the 
weight  of  authority  is  that  a  promise  of  this  sort  does  not  bar  a  set-off, 
either  under  the  ordinary  statutes  or  under  the  bankrupt  act,  unless 
the  property  has  been  intrusted  to  the  agent  for  a  particular  purpose 
inconsistent  with  such  an  application  of  the  surplus,  so  that  this  would 
be  a  fraud  or  breach  of  trust.  See  Key  v.  Flint,  8  Taunt.  21  ;  Bu- 
chanan v.  Findlay,  9  B.  &  C.  738,  for  cases  of  this  sort ;  and,  for  the 
general  rule,  Cornforth  v.  Rivett,  2  M.  &  S.  510  ;  Eland  v.  Carr,  1  East, 
375  ;  Atkinson  v.  Elliott,  7  T.  R.  378. 

In  this  case,  the  debt  of  $1,396  was  overdue  and  unpaid,  and  by  a 
statute  of  Massachusetts  Mr.  Whiting  had  a  right  to  sell  the  shares 
after  giving  a  certain  notice.  This  law  enters  into  the  contract  of  the 
parties  ;  and  though  there  is  no  evidence  of  a  power  of  sale  conferred 
by  Mr.  Gushing  (the  form  of  the  transfer  was  not  put  in  evidence),  yet 
the}-  will  be  taken  to  have  understood  that  there  would  be  a  power  of 
sale  in  accordance  with  the  statute.  On  the  day  of  the  bankruptcy, 
Gushing  was  indebted  to  the  petitioner  for  one-half  the  note  of  the  firm 
actually  paid  by  his  co-surety,  the  petitioner,  two  weeks  or  more  before 
that  time.  This  makes  out  a  case  of  mutual  credit  upon  the  authori- 
ties cited  and  the  others  which  have  followed  them :  a  debt  due  from 
Gushing  to  the  petitioner,  and  choses  in  action  of  Cushing's,  with  a 
present  power  of  sale  in  the  petitioner's  hands. 

I  understood  that  both  parties  submitted  the  matter  to  my  decision, 
and  accordingly  I  have  decided  it.  It  was  said  at  the  argument  that 
the  petitioner  did  not  care  to  prove  against  Cushing's  separate  estate, 
as  there  could  be  no  dividend.  If  so,  it  would  not  be  necessary  to  de- 
cide the  whole  case  now.  When  one  partner  has  pledged  his  shares 
for  the  debt  of  the  firm,  proof  may  be  made  in  full  against  the  assets 
of  the  firm,  because  it  is  only  when  the  proof  is  against  the  same  estate 
which  furnished  the  securitj-  that  a  sale  and  application  of  the  security 
is  required  by  the  bankrupt  law. 

Petition  granted.1 

1  Marks  v.  Barker,  1  Wash.  C.  C.  178 ;  Catlin  v.  Foster,  1  Sawy.  37  ;  Ex  parts 
Caylus,  1  Low.  550  ;  Re  McVay,  1 3  Fed.  Rep.  443,  ucc.  Brown  v.  New  Bedford  Inst. 
for  Savings,  137  Mass.  265 ;  Tallman  v.  New  Bedford  Bank,  138  Mass.  330  (con/. 
Hathaway  v.  Fall  River  Bank,  131  Mass.  16),  contra.  See  also  1  Columbia  Law  Rev. 
377, 


SECT.  IV.]  LIBBY   V.    HOPKINS.  555 

LIBBY   v.    HOPKINS. 

SUPREME  COURT  OP  THE  UNITED  STATES,  OCTOBER  TERM,  1881 
[Reported  in  104  United  States,  303.] 

ERROR  to  the  Supreme  Court  of  the  State  of  Ohio. 

-The  suit  was  brought  in  the  Superior  Court  of  Cincinnati  by  A.  T. 
Stewart  &  Co.,  of  which  firm  the  plaintiffs  in  error  are  the  survivors, 
against  Lewis  C.  Hopkins  and  wife,  and  Isaac  M.  Jordan,  trustee  in 
bankruptcy  of  Hopkins. 

It  appears  from  the  record  that  A.  T.  Stewart  &  Co.,  merchants,  of 
the  City  of  New  York,  loaned,  June  6,  1866,  Hopkins,  a  merchant  of 
Cincinnati,  Ohio,  $100,000,  and  took  his  promissoiy  note  of  that  date 
therefor,  payable  on  demand  with  interest  from  date,  to  secure  the 
paj'inent  of  which  he  executed  and  delivered  to  them  several  mortgages 
on  real  estate  in  Cincinnati  and  its  vicinity.  Both  before  and  after 
that  date  he  bought  of  them  large  quantities  of  goods,  and  as  a  matter 
of  convenience  kept  with  them  two  accounts,  —  one  a  cash  and  the 
other  a  merchandise  account.  They  were  his  bankers.  All  his  re- 
mittances were  sent  to  them  and  credited  to  him  in  the  cash  account. 
By  drafts  thereon  he  paid  his  debts  for  merchandise  to  them  and  other 
New  York  merchants,  and  in  order  to  replenish  it  he  borrowed  the 
$100,000  above  mentioned,  and  it  was  carried  to  his  credit  in  that 
account.  On  May  4,  1867,  he  paid  on  his  note  $25,000.  On  Nov.  12, 
1867,  he  remitted  to  Stewart  &  Co.  $10,000  ;  on  Dec.  27,  1867,  $1 7,000  ; 
on  the  28th  of  the  same  month,  $10,000;  and  on  the  30th,  $48,025. 
He  directed  these  remittances  to  be  applied  to  the  payment  of  his  note, 
and  to  be  credited  thereon.  It  is  now  no  longer  disputed  that  the  first 
three  of  these  remittances  were  so  applied.  The  last  two,  with  the 
interest  thereon,  constitute  the  sum  now  in  controversy. 

On  Jan.  1,  1868,  Hopkins  suspended  business,  insolvent.  At  that 
time  he  owed  A.  T.  Stewart  &  Co.  $231,515  on  account,  and  unsecured. 
His  liabilities  to  others  amounted  to  more  than  $500,000.  A  petition 
in  bankruptc}'  was  filed  against  him  February  29.  He  was  adjudicated 
a  bankrupt  March  30.  On  April  30  Jordan  was  appointed  trustee. 

As  to  the  foregoing  facts  there  is  no  dispute. 

In  August,  1868,  on  what  day  the  record  does  not  show,  Stewart  & 
Co.  commenced  this  suit  for  the  foreclosure  of  the  mortgages,  claiming 
as  due  the  full  amount  of  the  note,  less  the  payment  of  $25,000. 

The  answer,  besides  other  defences  not  pertinent  to  anjr  contention 
now  raised,  averred  that  Hopkins  had  paid  on  the  note,  not  only  the 
said  sum  of  $25,000,  but  also  the  remittances  above  mentioned,  mak- 
ing the  total  amount  paid  thereon  $110,025;  and  after  alleging  that 
said  payments  were  made  in  fraud  of  the  Bankrupt  Act,  demanded,  by 
way  of  counterclaim,  a  judgment  against  Stewart  &  Co.  therefor. 


556  LIBBY   V.   HOPKINS.  [CHAP.  VI. 

The  reply  admitted  that  Hopkins  requested  Stewart  &  Co.  to  credit 
the  remittances  on  his  mortgage  debt,  and  averred  that  they  were  held 
subject  to  liis  order,  and  continued  to  be  so  held,  up  to  the  time  when 
the  rights  of  Jordan,  trustee,  attached,  subject  to  such  law  of  offset  as 
is  provided  in  the  Bankrupt  Act.  It  nowhere  appeared  in  the  plead- 
ings that  Hopkins  was  indebted  to  the  plaintiffs  on  any  unsecured 
claim,  or  in  ain*  other  way,  except  upon  the  note  for  $100,000.  No 
unsecured  debt  of  Hopkins  was  pleaded  as  a  set-off  or  otherwise. 

The  Superior  Court  found  that  the  mortgages  were  valid,  and  the 
first  lien  <>i  the  premises  therein  described,  and  that  there  was  due 
thereon,  including  interest,  the  sum  of  $75,957.06.  It  rendered  a  final 
decree  that  unless  that  sum  with  interest  be  paid  within  one  hundred 
and  eighty  days  therefrom  to  Stewart  &  Co.,  the  mortgaged  premises 
should  be  sold. 

The  court  further  found  that  when  Hopkins  made  the  last  two  remit- 
tances, of  $10,000  and  $48,025,  respectively,  it  was  with  the  intent 
and  the  express  instruction  in  writing  to  Stewart  &  Co.  to  apply  them  in 
discharging  the  mortgage  claim  ;  that  Stewart  &  Co.  refused  to  do  so, 
but  assumed,  without  his  authority  or  consent,  to  apply,  and  did  apply 
them  to  liis  credit  on  the  general  account  against  him  for  merchandise  ; 
that  Stewart  &  Co.  had  no  right  to  make  such  application  ;  and  that 
the  remittances  remained  in  their  hands  as  his  moneys  from  the  several 
da\-s  of  tlirir  payment  until  Feb.  29,  1868,  when  the  title  of  Jordan  as 
trustee  attached  thereto.  It  also  found  that  the  said  two  several  sums 
were  not  subject  to  any  claim  of  set-off  or  cross-demand,  or  of  mutual 
debts  or  credits,  on  the  part  of  Stewart  &  Co.,  under  section  20  of  the 
Bankrupt  Act,  or  otherwise. 

The  court,  therefore,  rendered  a  decree  in  favor  of  Jordan,  trustee, 
against  Stewart  &  Co.  for  $58,025,  the  aggregate  of  the  last  two  re- 
mittances, with  interest,  amounting  in  all  to  $75,981.36. 

The  case  was  carried,  by  the  petition  in  error  of  Stewart  &  Co.,  and 
the  cross-petition  in  error  of  Jordan,  trustee,  to  the  Supreme  Court  of 
Ohio,  by  which  the  decree  of  the  Superior  Court  was  affirmed. 

Stewart  &  Co.  thereupon  brought  the  case  here  by  writ  of  error. 
Some  of  the  members  of  the  firm  have  died,  and  Libby  and  another  are 
its  surviving  members. 

Mr.  Aaron  F.  Perry,  for  the  plaintiffs  in  error. 

Mr.  Jackson  A.  Jordan  and  Mr.  Isaac  Dayton,  contra. 

Mr  Justice  WOODS,  after  stating  the  facts,  delivered  the  opinion  of 
the  court. 

The  only  question  to  which  our  attention  is  directed  by  the  plaintiffs 
is  that  of  set-off  under  the  twentieth  section  of  the  act  of  March  2, 
1867,  c.  176  (14  Stat.  517),  which  is  as  follows:  "In  all  cases  of 
mutual  debts  or  mutual  credits  between  the  parties,  the  account  be- 
tween them  shall  be  stated,  and  one  debt  set  off  against  the  other,  and 
the  balance  only  shall  be  allowed  or  paid,  but  no  set-off  shall  be  allowed 
of  a  claim  in  its  nature  not  provable  against  the  estate:  Provided,  that 


SECT.  IV.]  LIBBY   V.    HOPKINS.  557 

no  set-off  shall  be  allowed  in  favor  of  am-  debtor  to  the  bankrupt  of  a 
claim  purchased  by  or  transferred  to  him  after  the  filing  of  the  peti- 
tion." This  provision  was  in  force  at  the  time  of  the  trial,  and  is  now 
substantial!}-  incorporated  in  section  5073  of  the  Revised  Statutes. 

The  contention  of  the  plaintiffs  is  that  the}'  were  entitled  under  this 
section  to  set  off  an  unsecured  account  due  them  from  Hopkins  against 
the  $58,025  remitted  to  them  by  him  with  directions  to  credit  it  on  his 
mortgage  debt,  and  which  they  refused  so  to  apply. 

Waiving  the  difficulty  that  they  have  not  pleaded  that  account  as  a 
set-off,  we  shall  consider  the  question  made  by  them.  That  account  is 
a  claim  provable  against  the  bankrupt  estate,  and  it  was  not  purchased 
by  or  transferred  to  them  after  the  filing  of  the  petition  in  bankruptcy. 
The  controversy  is,  therefore,  reduced  to  this  issue  :  Were  that  account 
and  the  money  transmitted  by  Hopkins  to  them,  and  held  and  not 
applied  by  them  to  the  mortgage  debt,  mutual  credits,  or  mutual  debts 
which  could  be  set  off  against  each  other  under  the  twentieth  section  of 
the  Bankrupt  Act? 

The  plaintiffs  insist  that  the  term  "  mutual  credits  "  is  more  compre- 
hensive than  the  term  u  mutual  debts"  in  the  statutes  relating  to  set- 
off  ;  that  credit  is  synonymous  witlrtrust,  and  the  trust  or  credit  need 
not  be  money  on  both  sides  ;  that  where  there  is  a  deposit  of  property 
on  one  side  without  authority  to  turn  it  into  money,  no  debt  can  arise 
out  of  it ;  but  where  there  are  directions  to  turn  it  into  money  it  may 
become  a  debt,  the  reason  being  that  when  turned  into  money  it  be- 
comes like  any  other  mutual  debt.  They  say  that  the  first  of  the  two 
remittances  under  consideration  is  not  proved  to  have  been  other  than 
money,  but  as  it  was  only  $10,000,  its  application  to  the  note  could  riot 
be  required.  The  larger  remittance  was  in  drafts,  and  their  application 
could  not  be  required.  But  there  was  authority  to  turn  them  into 
money,  and  that  to  get  the  money  on  them  it  was  necessary  that  the 
drafts  should  be  indorsed  by  the  plaintiffs,  and  that  the  indorsement  to 
and  collection  by  them  put  the  money  received  in  the  same  plight  :iis 
if  the  drafts  had  been  sent  to  them  for  collection.  We  cannot  assent 
to  these  views,  and  they  receive  but  little  support  from  the  adjudged 
cases. 

Ex  parte  Deeze,  1  Atk.  228,  arose  under  the  twenty-eighth  section 
of  the  statute  5  Geo.  II.  c.  30,  which  provides  that,  "  when  it  shall 
appear  to  the  said  commissioners  [in  bankruptcy]  or  the  major  part  of 
them,  that  there  hath  been  mutual  credit  given  by  the  bankrupt  and 
any  other  person,  or  mutual  .debts  between  the  bankrupt  and  any 
other  person,  at  any  time  before  such  person  became  bankrupt,  the 
said  commissioners,  or  the  major  part  of  them,  or  the  assignees  of  such 
bankrupt's  estate,  shall  state  the  account  between  them,  and  one  debt 
be  set  against  another,  and  what  shall  appear  to  be  due  on  either  side 
on  the  balance  of  said  account,  and  on  setting  such  debts  against  one 
another,  and  no  more  shall  be  claimed  on  either  side  respectively."  In 
that  case,  a  packer  claimed  to  retain  goods  not  only  for  the  price  of 


558  LIBBY   V.    HOPKINS.  [CHAP.  VI. 

packing  them,  but  for  a  sum  of  £500  lent  to  the  bankrupt  on  his  note. 
Lord  Hardwieke  determined  that  he  had  such  right  on  the  ground  of 
mutual  credits,  holding  that  the  words  "  mutual  credits  "  have  a  larger 
effect  than  "  mutual  debts,"  and  that  under  them  man}-  cross-claims 
might  be  allowed  in  cases  of  bankruptcj',  which  in  common  cases  would 
be  rejected. 

But  this  ruling  was  subsequently  made  narrower  by  Lord  Hard- 
wieke himself,  in  Ex parte  Ockenden,  id.  235,  and  was  in  effect  over- 
ruled in  Rose  v.  Hart,  8  Taunt.  499.  In  that  case  trover  was  brought 
for  cloths  deposited  by  the  bankrupt  previously  to  his  bankruptcy,  with 
the  defendant,  a  fuller,  for  the  purpose  of  being  dressed.  It  was  held 
that  the  defendant  was  not  entitled  to  detain  them  for  his  general 
balance  for  such  work  done  by  him  for  the  bankrupt  previously  to  his 
bankruptc}',  for  there  was  no  mutual  credit  within  that  section.  And 
the  court  declared  that  the  term  "  mutual  credits  "  in  the  act  meant 
only  such  as  must  in  their  nature  terminate  in  debts. 

The  rule  established  in  this  case,  as  to  the  nature  of  the  credits 
which  can  be  the  subject  of  set-off,  has  been  declared  in  other  cases. 
Smith  v.  Hodson,  4  T.  R.  211  ;  Easum  v.  Cato,  5  Barn.  &  Aid.  861. 
The  effect  of  the  authorities  is,  that" the  term  "  mutual  credits  "  includes 
onlj"  such  where  a  debt  may  have  been  within  the  contemplation  of  the 
parties. 

These  authorities  make  it  clear  that,  even  under  the  Bankrupt  Act 
of  5  Geo.  II.,  the  plaintiffs  would  have  no  right  to  the  set-off  claimed 
by  them.  And  they  lose  sight  of  the  controlling  fact  that  the  money 
and  the  drafts  which  they  turned  into  monej*  were  remitted,  with  ex- 
press directions  to  apply  them  on  a  specific  debt.  Without  the  consent 
of  Hopkins  they  could  never  be  changed  into  a  debt  due  to  him  from 
the  plaintiffs,  and  that  consent  has  never  been  given. 

Whether  or  not  he  had  the  right  to  direct  the  application  is  imma- 
terial. There  was  no  legal  obstacle  to  the  application  as  directed. 
The  fact  that  he  gave  the  direction  imposed  on  the  plaintiffs  the  obliga- 
tion to  apply  the  money  as  directed,  or  to  return  it  to  him. 

They  had  no  better  right  to  refuse  to  make  the  application  and  to 
retain  the  money  and  set  off  against  it  the  debt  due  to  them  from  Hop- 
kins, than  if  they  had  been  directed  to  pay  the  mone}'  on  a  debt  due 
from  him  to  another  of  his  creditors,  or  than  they  had  to  apply  to  the 
payment  of  his  debt  to  them  money  which  he  left  with  them  as  a  special 
deposit. 

Hopkins  sent  them  the  money  and  drafts,  upon  the  faith  and  trust 
that  they  would  be  applied  according  to  his  instructions.  The  refusal 
so  to  apply  them  did  not  change  the  relations  of  the  parties  to  this 
fund,  nor  make  that  a  debt  which  before  such  refusal  was  a  trust.  To 
so  hold  would  be  to  permit  a  trustee  to  better  his  condition  b}-  a  refusal 
to  execute  a  trust  which  he  had  assumed.  Winslow  v.  Bliss,  3  Lans. 
N.  Y.  220,  and  Scammon  v.  Kimball,  92  U.  S.  362,  cited  by  the  plaintiffs 
to  support  their  contention,  are  cases  where  a  bank  or  banker  was 


SECT.  IV.]  LIBBY   V.   HOPKINS.  559 

allowed  to  set  off  the  money  of  a  depositor  against  a  debt  due  from 
him  to  the  bank.  The  answer  to  these  authorities  is  that  the  relation 
between  a  bank  and  its  general  depositor  is  that  of  debtor  and  creditor. 
When  he  deposits  moneys  with  the  bank,  it  becomes  his  debtor  to  the 
amount  of  them.  Foley  v.  Hill,  2  H.  L.  Gas.  28  ;  Bank  of  the  Republic 
r.  Millard,  10  Wall.  152;  Bollard  v.  Randall,  1  Gray  (Mass.),  605. 
When,  therefore,  he  becomes  indebted  to  the  bank,  it  is  a  case  of 
mutual  debt  and  mutual  credit,  which  may  well  be  set  off  against  each 
other. 

But  in  this  case  there  was  no  deposit.  The  relation  of  banker  and 
depositor  did  not  arise,  consequently  there  was  no  debt.  When  A. 
sends  money  to  B.,  with  directions  to  apply  it  to  a  debt  due  from  him 
to  B.,  it  cannot  be  construed  as  a  deposit,  even  though  B.  may  be  a 
banker.  The  reason  is  plain.  The  consent  of  A.  that  it  shall  be  con- 
sidered a  deposit,  and  not  a  payment,  is  necessaiy  and  is  wanting. 

Another  answer  to  the  contention  of  the  plaintiffs  is  found  in  the 
language  of  the  twentieth  section  of  the  Bankrupt  Act  of  March  2, 
1867,  c.  176,  which  differs  materially  from  that  of  the  twenty-eighth 
section  of  5  Geo.  II.  c.  30.  In  our  act  the  term  "  credits  "  and  "  debts  " 
are  used  as  correlative.  What  is  a  debt  on  one  side  is  a  credit  on  the 
other,  so  that  the  term  "  credits  "  can  have  no  broader  meaning  than 
the  term  "  debts."  We  find  no  warrant  in  the  language  of  the  section 
or  its  context  for  extending  the  term  "  credits  "  so  as  to  include  trusts. 
Generally  we  know  that  "credit"  and  "trust"  are  not  synon\"maus 
terms.  They  have  distinct  and  well-settled  meanings,  and  we  see  no 
reason  why  they  should  be  confounded  in  interpreting  the  twentieth 
section  of  the  Bankrupt  Act. 

To  authorize  a  set-off  there  must  be  mutual  credits  or  mutual  debts. 
The  remitting  of  certain  monej-  assets  by  Hopkins  to  the  plaintiffs,  to 
be  applied  by  them  according  to  his  instructions,  did  not  make  them 
his  debtors,  but  his  trustees.  So  that  there  were  in  the  case  no  mutual 
credits  or  debts.  The  indebtedness  was  all  on  the  side  of  Hopkins. 
The  plaintiffs  owed  him  nothing.  They  held  his  money  in  trust  to 
app!}'  it  as  directed  by  him. 

The)'  refused  to  make  the  application  as  he  directed.  They  held  it, 
therefore,  subject  to  his  order.  They  continued  so  to  hold  it  until  the 
rights  of  the  trustee  in  bankruptcy  attached,  and  until  he  sought  to  re- 
cover it  by  his  counter-claim  filed  in  this  case. 

The  only  contention  of  the  plaintiffs  set  up  in  this  court  is  that  the 
Supreme  Court  of  Ohio  approved  of  the  action  of  the  Superior  Court  of 
Cincinnati,  in  refusing  to  allow  the  plaintiffs  to  set  off  the  unsecured 
debt  due  to  them  by  Hopkins  against  funds  intrusted  to  them  by  him 
for  an  entirely  different  purpose.  We  are  of  opinion  that  the  decision 
of  the  Superior  Court  was  correct.  The  judgment  of  the  Supreme 
Court  of  Ohio  must,  therefore,  be 

Affirmed. 


560  MORGAN  V.  WORDELL.  [CHAP.  YI. 


MORGAN  v.  WORDELL. 

SUPREME  JUDICIAL   COURT  OF  .MASSACHUSETTS,  OCTOBER  22,   1900- 

APRIL  1,  1901. 

[Reported  in  178  Massachusetts,  350.] 

HOLMES,  C.  J.  This  is  a  suit  by  a  trustee  in  bankvuptcj-  against  a 
debtor  of  the  bankrupt.  The  debtor  claims  a  set-off  on  the  ground 
that  since  the  bankruptcy  he  has  paid  debts  due  from  a  former  part- 
nership consisting  of  himself,  the  bankrupt,  and  one  McGuire,  from 
which  debts  the  bankrupt  had  covenanted  to  save  his  partners  harm- 
less. It  is  objected  that  the  covenant  runs  to  the  two  other  partners 
jointly,  but  it  is  sufficiently  plain  that  there  are  several  covenants  to 
each.  The  more  serious  objection  is  that  the  principal  debt  paid  is  one 
which  has  been  disallowed  by  final  judgment  when  offered  by  the  cred- 
itors, H.  B.  Claflin  &  Company,  for  proof  against  the  estate,  on  the 
ground  that  they  received  a  preference,  and  that  a  claim  offered  in  the 
defendant's  name  in  respect  of  the  pa3-raent  also  has  been  disallowed. 

As  it  was  assumed  on  both  sides  that  the  provision  in  section  68  b 
of  the  United  States  Bankruptcy  Act  concerning  set-off  is  more  than  a 
rule  of  procedure,  and  governs  in  this  court  as  well  as  in  the  courts  of 
the  United  States,  we  shall  make  the  same  assumption  for  the  purposes 
of  this  case,  without  argument.  See  Hunt  v.  Holmes,  16  Nat.  Bankr. 
Reg.  101,  105  ;  Partridge  v.  Insurance  Co.,  15  Wall.  573,  580.  We 
shall  assume  further,  as  a  corollary,  that  if  a  set-off  is  to  be  maintained 
it  must  be  brought  within  the  words  of  the  section  referred  to.  Those 
words  are:  "A  set-off  or  counterclaim  shall  not  be  allowed  in  favor  of 
any  debtor  of  the  bankrupt  which  (1)  is  not  provable  against  the 
estate."  These  words  are  universal  in  form,  and  we  do  not  see  how 
a  set-off  can  be  claimed  in  this  case  outside  of  them. 

If,  then,  the  defendant  claims  by  .virtue  of  the  rights  of  a  quasi- 
surety  (Fisher  v.  Tifft,  127  Mass.  313,  314),  who  has  paid  and  therefore 
is  subrogated  to  the  claim  of  a  joint  creditor  of  himself  and  the  debtor 
(section  57 1),  the  trouble  is  that  he  has  to  take  the  claim  of  Claflin  & 
Company  as  he  finds  it,  and  he  finds  it  a  claim  which  is  not  provable 
against  the  estate,  because  Claflin  &  Company  have  received  prefer- 
ences which  have  not  been  surrendered.  Section  57</.  It  seems  hard 
that  a  matter  between  Claflin  &  Company  and  the  bankrupt,  with  which 
the  defendant  had  nothing  to  do,  should  bar  rights  arising  out  of  a 
payment  which  he  was  compelled  to  make.  But  we  do  not  feel  at 
liberty  to  give  the  language  of  section  57  i  other  than  its  most  natural 
meaning,  or  to  interpret  the  subrogation  there  provided  for  as  a  subro- 
gation free  from  the  disabilities  attached  to  the  creditor,  or  as  a  subro- 
gation to  the  creditor's  rights,  independent  of  the  effect  of  the  preference 


SECT.  IV.]  MORGAN   V.   WOKDELL.  561 

upon  them.     One  result  of  such  an  interpretation  would  be  to  allow  the 
claim  without  a  surrender  of  the  preference,  contrary  to  section  big.1 

It  is  suggested  that  the  adjudication  against  Claflin  &  Company  is 
res  inter  alios,  and  there  is  no  other  evidence  that  they  accepted  a 
preference.  But  the  defendant's  claim  by  subrogation  is  affected  by 
the  judgment  as  it  is  by  the  preference,  and  for  the  same  reason.  He 
stands  in  the  shoes  of  Claflin  &  Compan}',  succeeds  to  their  place,  in 
the  language  of  the  Roman  law,  and  is  the  same  person  with  them 
for  this  purpose,  a  notion  frequently  recurring  in  the  law.  Dernusson, 
de  la  Subrogation  (3d  ed.),  ch.  1,  No.  7;  Sheldon,  Subrogation,  §  2; 
4  Masse,  Droit  Commercial  (2d  ed.),  60,  No.  2152  ;  D.  20,  4,  12,  §  9  ; 
D.  4,  12,  16.  See  Day  v.  Worcester,  Nashua,  &  Rochester  Railroad, 
151  Mass.  302,  307,  308. 

The  defendant  also  claims  a  set-off  by  virtue  of  his  covenant.  "We 
assume  that  it  has  been  adjudicated  between  the  parties  in  the  District 
Court  that  the  defendant  has  not  a  claim  which  he  could  prove  in  his 
own  name,  and  that  this  decision  carries  with  it  the  corollary  that  he 
could  not  prove  his  claim  on  the  covenant  against  the  estate.  If,  there- 
fore, the  prohibition  of  a  set-off  of  a  claim  "  which  is  not  provable 
against  the  estate"  is  to  be  taken  with  simple  literalness  as  applying 
to  any  claim  that  could  not  be  proved  in  the  existing  bankruptcy  pro- 
ceedings, the  defendant's  set-off  cannot  be  maintained.  But  we  are  of 
opinion  that  the  seemingly  simple  words  which  we  have  quoted  must  be 
read  in  the  light  of  their  history  and  in  connection  with  the  general 
provision  at  the  beginning  of  section  68  for  a  set-off  of  mutual  debts 
"or  mutual  credits,"  and  that  so  read  they  interpose  no  obstacle  to 
the  defendant's  claim. 

The  provision  for  the  set-off  of  mutual  credits  is  old.  St.  4  &  5 
Anne,  ch.  17,  §  12 ;  5  Geo.  II.  ch.  30,  §  28 ;  46  Geo.  III.  ch.  135,  §  3  ; 
Gibson  v.  Bell,  1  Bing.  N.  C.  743,  753 ;  Ex  parte  Prescot,  1  Atk.  230. 
It  was  adopted  in  the  United  States  acts  of  1800,  ch.  19,  §  42,  1841, 
ch.  9,  §  5,  and  1867,  ch.  176,  §  20.  But  while  the  provision  as  to  mutual 
credits  was  thought  to  be  more  extensive  than  that  as  to  mutual  debts 
(Atkinson  v.  Elliott,  7  T.  R.  378,  380),  it  was  held  that  even  the 
broader  phrase  did  not  extend  to  claims  which,  when  the  moment  of 
set-off  arrived,  still  were  wholh*  contingent  and  uncertain  ;  such,  for 
instance,  as  the  claim  upon  this  covenant  would  have  been  if  the  de- 
fendant had  not  yet  been  called  upon  to  pa}'  anything  upon  the  original 
partnership  debt.  Abbott  v.  Hicks,  5  Bing.  N.  C.  578  ;  Robson,  Bank- 
ruptcy (7th  ed.),  374.  But  the  moment  when  the  set-off  was  claimed 
was  the  material  moment.  The  defendant's  claim  might  have  been 
contingent  at  the  adjudication  of  bankruptcy,  and  so  not  provable  in 
the  absence  of  special  provisions  such  as  are  to  be  found  in  the  later 
bankrupt  acts  in  England  and  in  the  United  States  Act  of  1867,  although 
not  in  the  present  law  ;  and  yet  if  it  had  become  liquidated,  as  here  by 
payment,  before  the  defendant  was  sued,  he  was  allowed  without  ques- 

*  Cf.  Re  Siegel-Hillmau  Co.,  Ill  Fed.  980;  Swarts  v.  Siegel,  117  Fed.  13. 


562  RE    LANE.    BRETT   &   CO.      EX   PARTE   DREYFUS.       [CHAP.  VI. 

tion  to  set  it  off.  Smith  v.  Hodson,  4  T.  R.  211;  Ex parte  Boyle,  Re 
Shepherd,  1  Cooke,  B.  L.  (8th  ed.)  561  ;  Ex  parte  Wagstaff,  13  Ves. 
65  ;  Marks  v.  Barker,  1  Wash.  C.  C.  178,  181. 

The  limitations  worked  out  by  these  decisions  were  expressed  in  the 
section  of  the  Act  of  1867  cited  above,  in  the  words  "but  no  set-off 
shall  be  allowed  of  a  claim  in  its  nature  not  provable  against  the 
estate."  These  words,  as  it  seems  to  us,  following  the  cases,  referred 
to  the  nature  of  the  claim  at  the  moment  when  it  was  sought  to  set  it 
off,  not  to  its  nature  at  the  beginning  of  the  pending  bankruptcy  pro- 
ceedings, and  did  not  prevent  a  set-off  of  a  claim  which  was  liquidated 
at  the  later  moment  merely  because,  when  the  bankruptcy  proceedings 
began,  for  some  reason  it  did  not  admit  of  proof.  The  present  statute 
leaves  out  the  words  "  in  its  nature,"  but  we  can  have  no  doubt  that  it 
was  intended  to  convey  the  same  idea  as  the  longer  phrase  in  the  last 
preceding  Act,  from  which  in  all  probability  its  words  were  derived. 
"Provable"  means  provable  in  its  nature  at  the  time  when  the  set-off 
is  claimed  not  provable  in  the  pending  bankruptcy  proceedings. 

The  right  to  set  off  the  claim  when  liquidated  after  the  beginning  of 
the  bankruptcy  proceedings  was  based  upon  its  being  a  mutual  credit, 
not  upon  the  claim  being  provable,  which  it  was  not  until  the  later 
bankruptcy  statutes.  Russell  v.  Bell,  8  M.  &  W.  277,  281.  Con- 
versely, of  course  the  exclusion  of  a  set-off,  when  the  claim  still  was 
contingent  and  the  defendant  had  made  no  payment,  did  not  stand  on 
the  ground  that  the  claim  was  not  provable  in  the  existing  bankruptcy 
proceedings,  but  on  the  ground  that  it  was  not  provable  in  its  nature, 
and  that  there  was  no  machinery  available  to  liquidate  it.  If  we  are 
right  in  supposing  that  the  Act  of  1867  meant  merely  to  codify  a  prin- 
ciple, or  rather  a  limitation,  developed  by  the  courts,  and  that  the 
words  of  the  present  Act  mean  no  more  than  those  of  the  Act  of  1867, 
it  follows  that,  although  the  defendant's  claim  could  not  have  been 
proved  against  the  estate,  still  it  is  a  mutual  credit  and  may  be  set  off 
when  he  is  sued. 

Judgment  for  defendant. 


RE  LANE,  BRETT  &  CO.     Ex  PARTE  DREYFUS. 

DISTRICT  COURT  FOR  THE  DISTRICT  OF  MASSACHUSETTS, 
JANUARY,   1874. 

[Reported  in  2  Lowell,  305.] 

CHARLES  and  Jacob  Dreyfus,  composing  the  mercantile  firm  of  Drey- 
fus &  Co.,  proved  a  debt  of  $1,047.14,  against  the  estate  of  the  bank- 
rupts, at  the  first  meeting  of  the  creditors.  Afterwards  the  assignee  of 
the  estate  applied  to  the  register,  in  the  mode  pointed  out  by  General 


SECT.  IV.]      HE   LANE,   BRETT   &    CO.      EX   PARTE   DEEYFUS.  563 

Order,  No.  34,  to  have  the  claim  re-examined  and  disallowed.  The 
issues  and  evidence  were  certified  to  the  court.  The  claim  sought  to 
be  expunged  was  for  the  contents  of  the  promissory  note  of  the  bank- 
rupts for  $1,519.58,  and  interest,  less  the  amount  of  an  account  of 
about  $500  for  goods  bought  of  them  by  Dreyfus  &  Co.  The  assignees 
alleged  that  the  note  really  belonged  to  Weil  &  Co.,  its  original  holders, 
and  had  been  transferred  to  Dreyfus  &  Co.  after  the  failure  of  the 
bankrupts,  though  before  their  petition  was  filed,  in  order  to  enable 
Dreyfus  &  Co.  to  get  the  full  benefit  of  the  set-off,  subject  to  an  ulti- 
mate settlement  between  the  parties  after  the  amount  of  the  dividends 
in  the  bankruptcy  should  be  ascertained.  The  conclusions  of  fact  are 
stated  in  the  opinion  of  the  court. 

M.  Storey,  for  the  proving  creditors. 

It.  M.  Morse,  Jr.,  for  the  assignees. 

LOWELL,  J.  The  evidence  in  this  case  is  of  a  character  to  satisfy 
me  that  the  bare  legal  title  to  the  note  was  transferred  to  Dreyfus  & 
Co.  If  the  indorsement  were  made  under  any  definite  and  complete 
arrangement  by  which  the  purchasers  were  to  own  the  note  absolutely 
for  a  consideration  paid  down,  or  even  for  a  credit  to  Weil  &  Co.,  if 
the  latter  were  their  debtors,  for  precisely  what  they  received  in  divi- 
dends, then  the  set-off  might  be  made,  provided  the  purchase  of  the 
note  was  not  at  so  late  a  period  as  to  bring  it  within  some  prohibition 
of  the  statute.  On  this  last  question,  that  is  to  say,  whether  a  pur- 
chase made  after  the  known  insolvency  but  before  the  technical  bank- 
ruptcy of  the  debtor  can  be  the  subject  of  set-off,  the  authorities  are 
divided  ;  but  I  shall  not  consider  it,  for  all  that  I  can  ascertain  of  the 
facts  is  that  there  was  a  legal  transfer ;  and  I  feel  bound  to  say  the 
note  was  held  by  Dreyfus  &  Co.  simply  as  trustees  for  Weil  &  Co. 

Under  such  circumstances  a  set-off  is  not  allowed,  either  by  the  gen- 
eral statutes  of  Massachusetts  applying  to  solvent  persons,  or  by  the 
bankrupt  law.  The  whole  law  of  this  matter  is  admirably  stated  in 
Forster  v.  Wilson,  12  M.  &  W.  191,  in  which  the  earlier  cases  are  dis- 
cussed. And  it  has  been  repeatedly  held  in  this  country  that  when  a 
trustee  is  party  to  an  action  or  to  a  proof  in  bankruptcy  in  his  repre- 
sentative character,  the  only  debts  which  can  be  set  off  on  either  side 
are  those  of  the  persons  for  whom  he  is  representative,  and  not  his  own 
personal  debts. 

So  here,  if  Weil  &  Co.  are  equitable  owners  of  this  note,  Dreyfus  & 
Co.,  holding  the  legal  title,  cannot  use  in  set-off,  to  diminish  their  claim 
as  such  trustee  against  the  bankrupts,  a  debt  they  themselves  owe  him 
for  goods  bought.  To  do  this,  they  must  have  acquired  the  true  as 
well  as  the  nominal  property  in  the  note. 

The  true  objection,  then,  to  the  proof  of  this  debt  by  Dreyfus  & 
Co.,  is  that  they  have  proved  too  little ;  that,  instead  of  proving  the 
whole  note  as  trustees  for  Weil  &  Co.,  they  have  only  proved  part  of 
it,  assuming  to  diminish  it  by  an  inadmissible  set-off.  As,  however, 
the  assignees  appear  to  fear  some  embarrassment  in  collecting  the  $500 


564  GKAY   V.   ROLLO.  [CHAP.  VI. 

due  them  from  Dreyfus  &  Co.,  if  the  proof  stands  in  its  present  form, 
the  order  will  be  :  — 

Proof  expunged,  without  prejudice  to  a  new  proof  by  Weil  & 
Co.,  or  by  Dreyfus  &  Co.  as  trustees,  for  the  full  amount 
of  the  note.1 


GRAY   v.    HOLLO. 
SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  TERM,  1873. 

[Reported  in  18  Wallace,  629.] 

APPEAL  from  the  Circuit  Court  for  the  Northern  District  of  Illinois ; 
the  case  being  thus  :  — 

Moses  Gray  filed  a  bill  in  the  court  below  against  William  Hollo,  as- 
signee in  bankruptcy  of  the  estate  of  the  Merchants'  Insurance  Com- 
pany of  Chicago,  to  compel  a  set-off  of  alleged  mutual  debts.  The 
insurance  company  had  become  bankrupt  by  the  great  fire  at  Chi- 
cago, and  at  that  time  held  two  promissory  notes  for  $5,555  each, 
made  by  the  complainant,  Gray,  jointly  with  one  Ga}Tlord,  which  the 
company  had  received  from  the  payee  in  the  regular  course  of  busi- 
ness. By  the  fire  referred  to,  Moses  Gray,  the  complainant,  and  his 
brother,  Franklin  Gray,  doing  business  under  the  firm  of  Gray  Brothers, 
suffered  in  the  destruction  of  buildings,  and  these  being  insured  by  the 
said  insurance  company  for  $30,000  on  three  several  policies,  the  com- 
pan}T  became  indebted  to  them  in  the  sum  named.  The  complainant 
alleged  in  his  bill  that  his  just  share  of  liability  on  the  two  notes  was 
one-half  of  the  amount,  and  he  desired  to  have  that  half  extinguished 
by  a  set-off  of  the  like  amount  due  on  the  policies.  The  money  due  on 
the  policies  was  confessedly  not  due  to  him  alone,  but  to  Gray  Brothers. 
But  he  alleged  that  his  brother  assented  to  and  authorized  such  ap- 
propriation. 

The  insurance  company  demurred,  and  the  demurrer  being  sustained 
the  court  dismissed  the  bill.  From  its  action  herein  Gray  took  this 
appeal. 

Mr.  J.  S.  Norton,  for  the  appellant. 

Mr.  A.  M.  Pence,  contra. 

Mr.  Justice  BRADLEY  delivered  the  opinion  of  the  court. 

The  bill  being  demurred  to,  the  assent  of  Franklin  Gray  to  the  ap- 
propriation asked  by  the  complainant  must  be  taken  as  true  ;  and  the 

1  Bishop  v.  Church,  3  Atk.  691  ;  Fair  v.  Mclver,  16  East,  130  ;  Belcher  r.  Lloyd, 
10  Bing.  316  ;  Lackington  v.  Combes,  6  Bing.  N.  C.  71 ;  Ex  parte  Whitehead,  1  Gl.  & 
J.  39 ;  Forster  v.  Wilson,  12  M.  &  W.  191  ;  Boyd  v.  Mangles,  16  M.  &  W.  337  ;  De 
Mattos  v.  Saunders,  L.  E.  7  C.  P.  570;  London  Bank  v.  Narraway,  L.  R.  15  Eq.  93  ; 
Re  Wilson,  10  Morrell,  219;  Elgood  v.  Harris  [1896]  2Q.  B.  491 ;  Sawyer  v.  Hoag,  17 
Wall.  610;  Scammon  v.  Kimball,  5  Biss.  431  ;  Jenkins  v.  Armour,  14  B.  R.  276,  ace. 


SECT.  IV.]  GRAY   V.   ROLLO.  565 

question  is,  whether  set-off  can  be  allowed  in  such  a  case  as  the  one 
presented  ?  , 

The  language  of  the  Bankrupt  Act,  on  the  subject  of  set-off,  is: 
"  That  in  all  cases  of  mutual  debts,  or  mutual  credits  between,  the 
parties,  the  account  between  them  shall  be  stated,  and  one  debt  set  off 
against  the  other,  and  the  balance  only  shall  be  allowed  or  paid."  It 
is  clear  that  these  claims  are  not  mutual  debts.  The}'  are  not  between 
the  same  parties.  The  notes  exhibit  a  liability  of  the  complainant  and 
Gaylord ;  the  policies,  a  claim  of  the  complainant  and  his  brother. 
But  it  is  said  that  by  the  law  of  Illinois,  all  joint  obligations  are  made 
joint  and  several ;  and,  therefore,  that  the  complainant  is  separately 
liable  on  the  notes,  and  could  be  sued  separately  upon  them.  Granting 
this  to  be  so,  the  debts  would  still  not  be  mutual.  If  sued  alone  on  the 
notes,  the  claim  on  the  policies,  which  he  might  seek  to  set  off,  pro 
tanto,  against  the  notes,  is  a  claim  due  not  to  him  alone,  but  to  him 
and  his  brother.  His  brother's  consent  that  he  might  use  the  claim  for 
that  purpose  would  not  alter  the  case.  Had  his  brother's  interest  been 
assigned  to  him  before  the  bankruptcy  of  the  compan}-,  and  without 
an}T  view  to  the  advantage  to  be  gained  by  the  set-off,  the  case  would 
be  different. 

Nor  does  the  case  present  one  of  mutual  credit.  There  was  no  con- 
nection between  the  claims  whatever,  except  the  accidental  one  of  the 
complainant's  being  concerned  in  both.  The  insurance  company,  so 
far  as  appears,  took  the  notes  without  any  reference  to  the  policies  of 
insurance  ;  and  Gray  Brothers  insured  with  the  company  without  any 
reference  to  the  notes.  Neither  transaction  was  entered  into  in  conse- 
quence of,  or  in  reliance  on,  the  other ;  and  no  agreement  was  ever 
made  between  the  parties  that  the  one  claim  should  stand  against 
the  other.  There  being  neither  mutual  debts  nor  mutual  credits,  the 
case  does  not  come  within  the  terms  of  the  bankrupt  law.  If  it  can 
be  maintained  at  all,  it  must  be  upon  some  general  principle  of 
equity,  recognized  by  courts  of  equit}*  in  cases  of  set-off ;  which,  if 
it  exist,  may  be  considered  as  applicable  under  an  equitable  construction 
of  the  act.  But  we  can  find  no  such  principle  recognized  by  the  courts 
of  equity  in  England  or  this  countr}',  unless  in  some  exceptional  cases 
which  cannot  be  considered  as  establishing  a  general  rule.  In  Penn- 
sylvania, it  is  true,  set-off  is  allowed  in  cases  where  the  claims  are 
not  mutual,  and,  in  that  State,  under  the  decisions  there,  it  is  probable 
that  set-off  would  be  allowed  in  such  a  case  as  this.  But  we  do  not 
regard  the  rule  adopted  in  Pennsylvania  as  in  accord  with  the  general 
rules  of  equity  which  govern  cases  of  set-off.  We  think  the  general 
rule  is  stated  by  Justice  Story,  in  his  treatise  on  Equit}'  Jurisprudence, 
§  1437,  where  he  says:  "Courts  of  equity,  following  the  law,  will  not 
allow  a  set-off  of  a  joint  debt  against  a  separate  debt,  or  conversely,  of 
a  separate  debt  against  a  joint  debt ;  or,  to  state  the  proposition  more 
generally,  they  will  not  allow  a  set-off  of  debts  accruing  in  different 
rights.  But  special  circumstances  may  occur  creating  an  equity, 


566  GRAY  V.  ROLLO.  [CHAP.  VI. 

which  will  justify  even  such  an  interposition.  Thus,  for  example,  if 
a  joint  creditor  fraudulent!}'  conducts  himself  in  relation  to  the  separ- 
ate property  of  one  of  the  debtors,  and  misapplies  it,  so  that  the 
latter  is  drawn  in  to  act  differently  from  what  he  would  if  he  knew 
the  facts,  that  will  constitute,  in  a  case  of  bankruptcy,  a  sufficient 
equity  for  a  set-off  of  the  separate  debt  created  by  such  misapplica- 
tion against  the  joint  debt.  So,  if  one  of  the  joint  debtors  is  only 
a  suret}'  for  the  other,  he  may,  in  equity,  set  off  the  separate  debt 
due  to  his  principal  from  the  creditor ;  for  in  such  a  case  the  joint 
debt  is  nothing  more  than  a  security  for  the  separate  debt  of  the 
principal ;  and,  upon  equitable  considerations,  a  creditor  who  has  a 
joint  securitj'  for  a  separate  debt,  cannot  resort  to  that  securit}'  with- 
out allowing  what  he  has  received  on  the  separate  account  for  which 
the  other  was  a  security.  Indeed,  it  may  be  generally  stated,  that  a 
joint  debt  may,  in  equity,  be  set  off  against  a  separate  debt,  where 
there  is  a  clear  series  of  transactions,  establishing  that  there  was  a 
joint  credit  given  on  account  of  the  separate  debt."  Other  instances 
are  given  by  way  of  illustration  of  the  principle  on  which  the  court  of 
equity  will  deviate  from  the  strict  rule  of  mutuality,  allowing  a  set-off ; 
all  of  them  based  on  the  idea  that  the  justice  of  the  particular  case 
requires  it,  and  that  injustice  would  result  from  refusing  it ;  but  none 
of  them  approaching  in  likeness  to  the  case  before  the  court.  There 
is  no  rule  of  justice  or  equit}'  which  requires  that  Gray  Brothers  should 
be  paid  in  preference  to  other  creditors  of  the  insurance  company,  out 
of  the  specific  assets  represented  by  the  notes  of  Gray  and  Gayloiti. 
If  the  complainant  instead  of  the  insurance  company  were  bankrupt, 
and  the  notes  were  valueless,  his  brother  and  the  creditors  of  Gray 
Brothers  would  think  it  very  hard  if  the  company  were  allowed  to  pay 
the  insurance  pro  tanto  with  that  worthless  paper. 

The  case  of  Tucker  v.  Oxle}',  5  Cranch,  34,  which  arose  out  of  the 
Bankrupt  Act  of  1800,  has  been  pressed  upon  our  attention  by  the 
counsel  of  the  appellant,  on  the  supposition  that  it  is  decisive  in  Us 
favor.  The  clause  relating  to  set-off  contained  in  that  act  (2  Stat.  at 
Large,  33,  §  42)  does  not  materially  differ  from  the  corresponding 
clause  in  the  act  of  1867.  Mutual  credits  given,  and  mutual  debts 
existing,  before  the  bankruptcy,  are  made  the  ground  of  set-off  in 
both  acts.  But  the  case  of  Tucker  v.  Oxley  will  be  found  to  differ 
from  the  present.  There  two  persons  by  the  name  of  Moore,  being 
partners,  became  indebted  to  Tucker.  They  afterwards  dissolved 
partnership,  and  Tucker  became  indebted  to  one  of  them,  who  con- 
tinued the  business,  and  who  afterwards  became  bankrupt.  Oxley,  the 
assignee,  sued  Tucker  for  this  debt,  but  the  latter  was  allowed  to  set 
off  his  claim  against  the  two.  The  court  put  the  decision  upon  the 
ground  that  the  debt  due  from  the  two  Moores  to  Tucker  could  have 
been  collected  from  the  property  of  either  of  them,  and  was  provable 
under  the  bankruptcy  proceedings  against  the  estate  of  him  who  be- 
came bankrupt,  and  hence  it  might  be  set  off  against  any  claim  which 


SECT.  IV.]  IN  RE  BECKER  BROTHERS.  567 

the  bankrupt  had  against  Tucker.  The  case,  therefore,  was  the  same 
as  the  case  before  us  would  have  been  if  the  complainant  had  been 
solely  entitled  to  the  insurance  money,  and  if  he  and  not  the  company 
had  become  bankrupt.  In  such  case  the  company,  according  to  the 
case  of  Tucker  v.  Oxley,  could  have  set  off  the  notes  of  the  complain- 
ant and  Gay  lord  against  the  claim  for  insurance.  The  reciprocal  form 
of  this  rule  would  have  enabled  the  complainant  to  succeed  in  this 
case  had  he  been  the  sole  claimant  of  the  money  due  for  insurance. 
In  other  words,  the  case  of  Tucker  v.  Oxley  decides  that  a  joint  in- 
debtedness may  be  proved  and  set  off  against  the  estate  of  either 
of  the  joint  debtors  who  ma}'  become  bankrupt,  and  the  fact  that  it 
maj-  be  subject  to  be  marshalled  makes  no  difference.  The  joint 
debtors  are  severally  liable  in  solido  for  the  whole  debt.  But  the  case 
does  not  decide  that  a  joint  claim,  that  is  to  say,  a  debt  due  to  several 
joint  creditors  can  be  set  off  against  a  debt  due  by  one  of  them.  If  a 
debt  is  due  to  A.  and  B.,  how  can  any  court  compel  the  appropria- 
tion of  it  to  pa}-  the  indebtedness  of  A.  to  the  common  debtor  without 
committing  injustice  toward  B.  ?  The  debtor  who  owes  a  debt  to 
several  creditors  jointly  cannot  discharge  it  by  setting  up  a  claim 
which  he  has  against  one  of  those  creditors,  for  the  others  have  no 
concern  with  his  claim  and  cannot  be  affected  by  it ;  and  no  more 
can  one  of  several  joint  creditors,  who  is  sued  by  the  common  debtor 
for  a  separate  claim,  set  off  the  joint  demand  in  discharge  of  his  own 
debt,  for  he  has  no  right  thus  to  appropriate  it.  Equity  will  not 
allow  him  to  pay  his  separate  debt  out  of  the  joint  fund.  And  if  he 
had  the  assent  of  his  co-obligees  to  do  this,  it  would  be  unjust  to  the 
suing  debtor,  because  he  has  no  reciprocal  right  to  do  the  same  thing. 

The  case  before  us,  therefore,  is  clearly  distinguishable  from  that  of 
Tucker  v.  Oxley,  and  the  ground  on  which  that  case  was  put  is  not  ap- 
plicable to  this. 

Decree  affirmed. 


IN  RE  BECKER  BROTHERS. 

DISTRICT  COURT  FOR  THE  MIDDLE  DISTRICT  OP  PENNSYLVANIA, 
JULY  81,  1905. 

[Reported  in  139  Federal  Reporter,  366.] 

ARCHBALD,  District  Judge.  Attempt  is  made  in  this  case  to  set  off 
against  a  claim  for  rent,  which  has  been  duly  proved,  a  counterclaim 
for  damages  against  the  landlord  for  negligently  allowing  water  to 
come  in  upon  the  premises  leased  by  the  bankrupts,  by  which  the 
bowling  alleys  which  they  had  constructed  there  were  injured. 

If  the  case  were  to  go  by  the  State  law,  it  is  clear  that  no  such  set- 
off  or  counterclaim  would  be  maintainable.  It  does  not  arise  out  of 
any  duty  imposed  on  the  landlord  by  that  relation,  or  the  covenants  of 


568  IN  RE  BECKER  BROTHERS.          [CHAP.  VI. 

the  lease,  but  is  admittedly  based  on  the  larger  obligation  outside 
of  that,  by  which,  as  it  is  said,  he  was  bound  to  do  or  suffer  no  act  by 
which  the  tenants  should  be  injured  or  interfered  with  in  the  enjoyment 
of  the  premises  demised.  But  it  was  expressly  held  in  Groetzinger  v. 
Latimer,  146  Pa.  628,  23  Atl.  393,  following  a  number  of  preceding 
cases,  that  matters  sounding  in  tort,  and  arising  out  of  a  different 
transaction,  cannot  be  used  as  a  set-off  against  an  unrelated  claim.  In 
that  case,  to  make  the  analogy  complete,  the  plaintiffs  sued  for  rent; 
and  the  defendants  put  in  a  counterclaim  for  damages  sustained  by 
reason  of  the  unlawful  seizure  of  their  property  on  landlord's  warrant, 
and  the  consequent  interference  with  and  injury  to  their  business.  But 
it  was  held  that  this,  in  effect,  was  a  tort,  which  would  form  the  subject 
of  an  action  ex  delicto,  and  could  not,  therefore,  be  brought  in  as  a 
set-off. 

The  case  is  to  be  disposed  of,  however,  by  a  reference  to  the  bank- 
ruptcy act,  and  the  question  is  as  to  what  is  there  provided.  By  section 
68  (Act  July  1,  1898,  c.  541,  30  Stat.  565  [U.  S.  Comp.  St.  1901, 
p.  3450] )  it  is  declared  : 

"  (a)  In  all  cases  of  mutual  debts  or  mutual  credits  between  the  estate 
of  a  bankrupt  and  a  creditor  the  account  shall  be  stated  and  one  debt 
shall  be  set  off  against  the  other,  and  the  balance  only  shall  be  allowed 
or  paid." 

Also  that : 

' '  (b)  A  set-off  or  counter  claim  shall  not  be  allowed  in  favoi'  of  any 
debtor  of  the  bankrupt  which  is  not  provable  against  the  estate." 

The  bankruptcy  act  of  1867  had  a  substantially  similar  provision, 
which  was  itself  taken  from  the  earlier  English  acts,  under  which  it 
was  decided  that  by  "  mutual  credits  "  are  meant  such  as  must,  in  their 
nature,  terminate  in  debts,  or  a  debt  be  in  the  contemplation  of  the 
parties.  Ross  v.  Hart,  8  Taunt.  499,  2  Smith's  Lead.  Cases,  309 ; 
Naoroji  v.  Bank  of  India,  L.  R.  3  C.  P.  444  ;  Libby  v.  Hopkins,  104 
U.  S.  303,  26  L.  Ed.  769.  It  was  accordingly  held  in  the  latter  case 
that,  in  a  suit  b3r  an  assignee  in  bankruptcy  to  recover  money  sent  to 
the  defendants  by  the  bankrupt  in  trust  to  be  applied  to  a  specific  pur- 
pose, a  debt  due  b}'  the  bankrupt  to  the  defendants  could  not  be  set 
off.  It  is  true  that  in  Booth  v.  Hutchinson,  L.  R.  15  Eq.  30,  a  tenant, 
from  whom  rent  was  due  to  the  bankrupt  estate,  was  held  entitled  to 
set  off  damages  arising  out  of  a  breach  of  the  lease.  And  in  Peat  v. 
Jones,  8  Q.  B.  Div.  147,  and  Jacob  v.  Kipping,  9  Q.  B.  Div.  113,  in  an 
action  to  recover  the  unpaid  balance  due  on  goods  contracted  to  be 
sold  and  delivered  by  the  bankrupt,  damages  accruing  in  the  one  case 
from  the  non-delivery  of  a  part  of  the  goods,  and  in  the  other  from 
fraudulent  representations  made  in  the  course  of  the  sale,  were  allowed 
to  come  in.  But  these  cases  arose  under  the  more  recent  English  acts, 
in  which  the  words  "  mutual  dealings  "  —  a  much  more  comprehensive 
term  than  "mutual  credits" — appeared;1  and  in  Peat  v.  Jones,  as 

1  Although  in  Makehan  v.  Crow,  15  Com.  Bench  (N.  S.)  47,  a  similar  ruling  was 
made  under  the  prior  law. 


SECT.  IV.]  IN   RE   BECKER   BROTHERS.  569 

well  as  in  Jacob  v.  Kipping,  it  is  pointed  out  that  the  damages 
sought  to  be  set  off  grew  directly  out  of  a  breach  of  the  obligation  in- 
volved in  the  contract  of  sale.  That  there  was  no  intention  of  depart- 
ing from  the  earlier  construction  by  anything  which  is  so  decided  is 
shown  by  Palmer  v.  Day  (1895),  2  Q.  B.  618,  where  it  was  said  by 
Russell,  C.  J. : 

"  The  section  [of  the  English  bankruptcy  act  relating  to  the  subject 
of  set-off],  in  its  present  shape,  has  been  held  applicable  to  all  demands 
provable  in  bankruptcy,  and  so  to  include  claims  as  well  in  respect  of 
debts  as  of  damages,  liquidated  or  unliquidated,  provided  they  arise 
out  of  contract.  But  whilst  the  right  of  set-off  has  been  thus  widely 
extended,  it  is  still  subject  to  the  limitation  that  the  '  dealings  '  must  be 
such  that,  in  the  result,  the  account  contemplated  in  the  section  can 
be  taken  in  the  way  described.  In  other  words,  the  dealings  must 
be  such  as  will  end  on  each  side  in  a  money  claim." 

Consistently  with  this  it  was  also  held  in  Eberle  Hotel  v.  Jonas,  12 
Q.  B.  Div.  459,  that  where,  in  winding-up  proceedings,  where  the 
bankruptcy  rule  prevails,  the  liquidator  of  the  company  which  is  being 
wound  up  is  entitled  to  a  return  of  goods  in  specie,  and  has  brought  an 
action  of  detinue  therefor,  the  defendants  will  not  be  allowed  to  assert 
a  counterclaim  for  goods  supplied,  on  the  ground  of  mutual  dealings. 

These  cases  consider  the  question  from  the  reverse  standpoint  from 
which  it  comes  up  here  ;  that  is  to  say,  the  right  of  set-off  is  not  claimed 
in  behalf  of  the  estate,  but  against  it.  But  that  is  not  material.  The 
principle  is  the  same,  and,  b}r  it,  it  is  clear  that, -from  whatever  side 
considered,  it  cannot  be  regarded  as  extending  to  a  claim  for  damages, 
sounding  in  tort,  and  growing  out  of  an  entirety  different  and  independ- 
ent transaction.  The  right  of  action,  no  doubt,  vested  in  the  trustee, 
in  the  present  instance,  to  recover  the  damages  alleged  to  have  been 
done  to  the  bankrupts'  propert}'.  Section  70  a  (6),  30  Stat.  566  [U.  S. 
Comp.  St.  1901,  p.  3451].  And  the  composition  offered  by  the  bank- 
rupts having  been  accepted  and  confirmed,  this  right  has  now  reverted 
to  them  again.  Section  70  b.  So  that  no  difficulty  arises  upon  that 
score.  The  bankrupts  would  therefore  unquestionably  be  entitled  to 
have  the  claim  for  rent  reduced  in  the  way  they  ask,  in  relief  of  the 
composition  which  they  are  to  pay,  if  only  the  counterclaim  which  they 
set  up  could  be  entertained.  But  for  the  reasons  stated,  it  cannot  be, 
and  the  action  of  the  referee  in  rejecting  it  must  therefore  be  sustained. 
The  suggestion  that,  unless  the  set-off  is  allowed,  the  bankrupts  will  be 
without  remedy,  even  if  it  afforded  the  basis  for  an  argument,  is  met 
by  the  consideration,  which  has  just  been  alluded  to,  that  by  the  ex- 
press provision  of  the  act  the  bankrupts  are  reinvested  by  the  compo- 
sition with  all  their  pre-existing  rights,  which  they  can  enforce  by 
action,  the  same  as  though  bankruptcy  had  not  intervened.  Stone  v. 
Jenkins,  176  Mass.  544,  57  N.  E.  1002,  79  Am.  St.  Rep.  343  ;  4  Am. 
Bankr.  Rep.  568. 


570         WESTERN   TIE   AND   TIMBER   COMPANY   V.   BROWN.       [CHAP.  VI. 


WESTERN   TIE   AND   TIMBER   COMPANY  v.    BROWN. 

SUPREME  COURT  OF  THE  UNITED  STATES,  JANUARY  S-FEBRUARY 

20,  1905. 

[Reported  in  196  United  States,  502.] 

THIS  is  an  appeal  from  a  decree  of  the  Circuit  Court  of  Appeals  for 
the  Eighth  Circuit,  affirming  an  order  directing  that  the  claim  of  the 
Western  Tie  &  Timber  Company  against  the  estate  of  S.  F.  Harrison, 
a  bankrupt,  be  expunged  unless  the  company  paid  to  the  trustee  in 
bankruptcy  a  specified  sum,  found  to  have  been  transferred  to  the 
company  by  the  bankrupt,  and  decided  to  have  operated  a  voidable 
preference. 

The  facts  were  thus  found  by  the  Circuit  Court  of  Appeals  : 

For  some  years  prior  to  February  24,  1903,  the  tie  company  and 
Harrison  had  been  engaged  in  removing  timber  from  land  of  the 
former,  and  converting  it  into  ties,  which  the  company  received  and 
sold.  For  many  months  prior  to  October,  1902,  Harrison  had  owned 
and  conducted  stores  in  the  vicinity  of  the  places  where  the  work  of 
cutting  and  hauling  the  ties  was  carried  on,  and  had  furnished  the 
laborers  engaged  in  that  work  with  groceries  and  other  supplies. 
These  laborers  and  Harrison  were  paid  by  the  tie  company  in  this 
way :  Once  in  two  or  four  weeks  an  inspector  sent  to  the  tie  company 
a  pay  roll,  on  which  the  name  of  each  laborer,  the  amount  he  had 
earned,  and  the  value  of  the  supplies  he  had  received  from  Harrison, 
appeared.  The  company  deducted  from  the  earnings  of  each  laborer 
the  value  of  the  supplies  the  laborer  had  received,  and  sent  him  a 
check  for  the  balance.  At  the  same  time  it  sent  to  Harrison  a  check 
for  the  aggregate  amount  of  the  supplies  which  he  had  furnished  to  the 
laborers. 

Four  months  before  the  filing  of  the  petition  in  bankruptcy,  or  Octo- 
ber 24,  1902,  Harrison  owed  the  tie  company  more  than  $20,000. 

Between  December  27,  1902,  and  February  24,  1903,  the  company 
refused  to  pay  to  Harrison,  retained  and  credited  on  its  claim  against 
him  $2,210.73,  which  was  due  him  for  supplies  he  had  furnished  to 
the  laborers  subsequent  to  November  30,  1902. 

At  all  times,  when  the  amounts  which  aggregate  $2,210.73  became 
due  and  were  retained  by  the  company,  Harrison  was  insolvent,  the  tie 
company  knew  that  fact,  and  it  intended,  by  retaining  these  amounts, 
to  secure  to  itself  a  preference  over  the  other  creditors  of  the  insolvent, 
but  Harrison  had  no  such  intention. 

After  the  company  had  retained  several  hundred  dollars  of  the 
amount  due  Harrison  for  the  supplies,  it  advanced  to  him  $75  under  a 
new  and  further  credit. 


SECT.  IV.]       WESTERN   TIE   AND    TIMBER  COMPANY   V.   BROWN.         571 

Mr.  Justice  WHITE  delivered  the  opinion  of  the  court. 

We  must,  at  the  outset,  in  the  light  of  the  facts  found  below,  deter- 
mine the  exact  relation  existing  between  the  bankrupt  and  the  tie 
company,  in  order  to  fix  the  true  import  of  the  transactions  by  which 
the  tie  company,  in  making  its  claim  against  the  bankrupt  estate,  as- 
serted a  right  to  retain  and  set  off  the  sums  which,  in  its  proof  of 
claim,  it  described  as  "  deductions  from  pay  rolls." 

We  think  the  findings  establish  that  Harrison  sold  the  goods,  not  to 
the  tie  company,  but  to  the  laborers,  and  therefore  the  result  of  the 
sale  was  to  create  an  indebtedness  for  the  price  alone  between  Harrison 
and  the  employees.  This  is  not  only  the  necessary  consequence  of  the 
facts  stated,  but  likewise  conclusively  flows  from  the  nature  of  the  proof 
of  claim  made  by  the  tie  company,  since  that  proof,  so  far  as  the  items 
concerning  the  price  of  the  goods  sold  to  the  employees  are  concerned, 
based  the  indebtedness  by  the  tie  company  to  Harrison,  not  upon  any 
supposed  original  obligation  on  the  part  of  the  tie  company  towards 
Harrison  to  pay  for  the  goods,  but  upon  the  ' '  deductions  from  pay- 
rolls," made  by  the  tie  company  in  paying  its  employees.  The  effect 
of  this  was  to  trace  and  limit  the  origin  of  the  debt  due  by  the  tie 
company  to  Harrison  solely  to  the  fact  that  the  tie  company  had 
deducted,  in  paying  its  employees,  money  due  to  Harrison  by  the 
employees,  which,  from  the  fact  of  the  deduction,  the  tie  company 
had  become  bound  to  pay  to  Harrison.  We  think,  also,  the  facts 
found  establish  that  the  course  of  dealing  between  Harrison  and  the 
tie  company  concerning  the  deductions  from  pay  rolls  was  that  the  tie 
company,  when  it  made  the  deductions,  was  under  an  obligation  to 
remit  the  money  collected  from  the  laborers  for  account  of  Harrison 
to  him,  irrespective  of  any  debt  which  he  might  owe  the  tie  company. 
This  follows  from  the  finding  that,  although  there  was  a  debt  existing 
between  Harrison  and  the  tie  company,  the  course  of  dealing  between 
them  was  that  when  the  tie  company  made  deductions  from  the  wages 
of  the  laborers  of  sums  of  money  due  by  them  to  Harrison  the  tie  com- 
pany regularly  remitted  the  proceeds  of  the  deductions  to  Harrison. 
This  conclusion,  moreover,  is  the  result  of  the  finding  that  Harrison 
had  no  intention  to  give  the  tie  company  a  preference,  for  if  Harri- 
son, being  insolvent,  to  the  knowledge  of  the  company,  within  the  pro- 
hibited period,  gave  to  the  tie  company  authority  to  collect  the  sums 
due  to  him  by  the  laborers  for  goods  sold  them,  with  the  right,  or  even 
the  option  to  apply  the  money  to  a  prior  debt  due  by  Harrison  to  the 
company,  the  necessary  result  of  the  transaction  would  have  been  to 
create  a  voidable  preference.  And  if  the  inevitable  result  of  the 
transaction  would  have  been  to  create  such  a  preference,  then  the  law 
would  conclusively  impute  to  Harrison  the  intention  to  bring  about 
the  result  necessarily  arising  from  the  nature  of  the  act  which  he  did. 
Wilson  v.  City  Bank,  17  Wall.  486.  To  give  effect,  therefore,  to  the 
finding  that  there  was  no  intention  on  the  part  of  Harrison  to  prefer, 
we  must  consider  that  the  authority  given  by  him  to  the  tie  company 


572        WESTERN   TIE   AND   TIMBER   COMPANY   V.   BROWN.        [CHAP.  VI. 

to  collect  from  the  laborers  did  not  give  that  company  the  right,  or 
endow  it  with  the  option,  when  it  had  collected,  to  retain  the  money 
for  its  exclusive  benefit,  and  to  the  detriment  of  the  other  creditors 
of  Harrison. 

The  result  of  the  facts  found,  then,  is  this  :  Harrison  sold  his  goods 
to  the  laborers,  and  agreed  with  the  tie  company  that  that  company, 
when  it  paid  the  laborers,  should  deduct  the  amount  due  by  the 
laborers  from  the  wages  which  the  tie  company  owed  them,  and, 
after  making  the  deduction,  should  remit  to  Harrison  the  amount 
thus  deducted,  irrespective  of  any  indebtedness  otherwise  due  by 
Harrison  to  the  tie  company.  Did  this  give  rise  to  a  voidable  prefer- 
ence within  the  intendment  of  sec.  57g  and  60b  of  the  Bankrupt  Act? 

In  view  of  the  necessary  result  of  the  findings  which  we  have  pre- 
viously pointed  out,  it  is,  we  think,  beyond  doubt  that  the  agreement 
was  not  voidable  preference  within  the  meaning  of  the  statute,  since, 
considering  the  agreement  alone,  it  brought  about  no  preference 
whatever.  This  leaves  only  for  consideration  the  question  whether 
the  tie  company  was  entitled  to  prove  its  claim,  as  it  sought  to  do, 
for  the  balance  owing,  after  crediting  as  a  set-off  the  "  deductions 
from  pay  rolls,"  to  which  we  have  referred.  Now,  as  we  have  seen, 
from  the  facts  found,  it  must  be  that  the  agreement  between  Har- 
rison and  the  tie  company  obligated  the  latter,  when  it  made  the 
deductions  from  pay  rolls,  to  remit  to  Harrison  the  amount  of  such 
deductions,  irrespective  of  the  account  between  itself  and  Harrison. 
It  follows  that  as  to  such  deductions  the  tie  company  stood  towards 
Harrison  in  the  relation  of  a  trustee ;  and,  therefore,  the  case  was 
not  one  of  mutual  credits  and  debts,  within  the  meaning  of  the  set- 
off  clause  of  the  bankrupt  law.  Libby  v.  Hopkins,  104  U.  S.  303. 
And,  irrespective  of  the  trust  relation  which  the  findings  establish,  it 
is  equally  clear  from  the  general  considerations  that  the  right  to  set-off 
did  not  exist.  To  allow  the  set-off  under  the  circumstances  disclosed 
would  violate  the  plain  iutendment  of  the  inhibition  contained  in 
clause  b  (2)  of  sec.  68  of  the  Bankrupt  Act,  which  forbids  the  allow- 
ance to  any  debtor  of  a  bankrupt  of  a  set-off  or  counterclaim  which 
"  was  purchased  by  or  transferred  to  him  after  the  filing  of  the  peti- 
tion, or  within  four  months  before  such  filing,  with  a  view  to  such 
use,  and  with  knowledge  or  notice  that  such  bankrupt  was  insolvent, 
or  had  committed  an  act  of  bankruptcy."  That  is  to  say,  whether 
or  not  the  trust  relation  was  engendered,  the  result  would  still  be 
that  the  tie  company,  within  the  prohibited  period,  and  with  knowl- 
edge of  the  insolvency  of  Harrison,  acquired  the  claims  of  the  latter 
against  the  laborers,  with  a  view  to  using  the  same  by  way  of  pay- 
ment or  set-off,  so  as  to  obtain  an  advantage  over  the  other  creditors, 
which  it  was  not  lawfully  entitled  to  do. 

As  we  have  concluded  that,  under  the  findings,  there  was  no  void- 
able preference,  we  think  the  court  below  erred  in  refusing  to  allow 
the  tie  company  to  prove  its  claim,  unless  it  surrendered  the  sums 


SECT.  IV.]        WESTERN   TIE    AND   TIMBER   COMPANY   V.    BROWN.         573 

which  it  owed  to  Harrison  and  his  bankrupt  estate.  Section  57g  of  the 
Bankrupt  Act,  as  amended  by  the  act  of  February  5,,  1903,  empow- 
ering the  court  to  compel  creditors  to  surrender  preferences  as  a  pre- 
requisite to  the  proof  of  claims  against  the  estate  of  the  bankrupt, 
relates  only  to  those  creditors  ' '  who  have  received  preferences  void- 
able under  section  sixty,  subdivision  b."  But  it  is  also  demonstrated, 
from  what  we  have  said,  that  the  tie  company  was  not  entitled  to 
prove  its  claim  as  it  sought  to  do,  embracing,  as  it  did,  the  assertion 
of  a  right  to  set-off,  and  thus  extinguish  the  sum  which  it  owed  to  the 
bankrupt  estate,  resulting  from  the  deductions  from  pay  rolls.  Whilst, 
therefore,  because  of  the  error  in  imposing  the  condition  of  prerequi- 
site surrender  of  the  alleged  preference,  the  judgment  below  was  erro- 
neous, nevertheless  the  court  was  correct  in  refusing  to  allow  the 
alleged  set-off,  and  in  refusing  to  permit  proof  to  be  made  which  em- 
braced and  asserted  such  set-off.  It  follows  that  although  the  judg- 
ment below  must  be  reversed  for  the  reasons  stated,  the  case  should  be 
remanded  with  directions  to  disregard  the  alleged  claim  of  set-off,  to 
reject  any  proof  of  claim  asserting  the  same,  and  to  permit  a  claim  to 
be  filed  for  the  gross  indebtedness  to  the  tie  company,  with  the  alleged 
set-off  eliminated.  The  result  will  be  that  the  tie  company  will  be 
a  creditor  of  the  estate  for  the  whole  amount  of  its  claim,  and  will  be, 
at  the  same  time,  a  debtor  to  the  estate  for  the  amount  of  the  de- 
ductions from  the  pay  rolls  collected  by  it,  the  court  below,  of  course, 
having  power  to  take  such  steps  as  may  be  lawful  to  protect  the  estate 
in  respect  to  the  payment  of  dividends  to  the  tie  company,  in  the 
event  that  company  does  not  discharge  its  obligations  to  the  bankrupt 
estate. 


574  IN  RE  PRICE.  [CHAP.  VIL 


CHAPTER   VII. 

VARIOUS   DUTIES   AND   POWERS   OF   THE   BANKRUPT 
AND   HIS   TRUSTEE. 


IN  RE   PRICE. 

DISTRICT  COURT  FOR  THE  SOUTHERN  DISTRICT  OF  NEW  YORK, 
FEBRUARY  2,  1899. 

[Reported  in  91  Federal  Reporter,  635.] 

BROWN,  District  Judge.  Certain  creditors  of  the  bankrupts  not 
having  attended  at  the  first  meeting  when  the  bankrupts  were  present 
and  ready  for  examination,  but  having  afterwards  been  admitted  to 
prove  their  claim,  applied  to  the  referee  to  order  an  examination  of 
the  bankrupts  in  their  behalf  after  the  bankrupts  had  filed  their  appli- 
cation for  discharge.  The  referee  declined  to  order  the  examination 
until  specifications  in  opposition  to  the  discharge  should  be  filed.  The 
question  has  been  certified  to  me. 

I  do  not  find  anything  in  the  bankrupt  act  or  the  rules  which  limits 
the  examination  of  the  bankrupt  to  any  particular  time  or  occasion. 
Under  subdivision  9  of  section  7,  it  would  seem  that  such  an  exami- 
nation may  be  ordered  at  an}"  time  during  the  pendenc}'  of  the  pro- 
ceedings. It  is  not  unreasonable  1  think  to  allow  creditors  to  examine 
the  bankrupt  concerning  the  mode  of  conducting  his  business,  for  the 
purpose  of  ascertaining  whether  there  has  been  any  such  offence  com- 
mitted, or  failure  to  keep  books,  as  would  furnish  a  just  ground  for 
refusing  a  discharge  ;  and  therefore  I  think  such  applications  should  be 
allowed  before  specifications  are  filed,  if  applied  for  on  the  return  day 
of  the  notice  of  the  debtor's  application  for  discharge,  and  no  prior 
examination  of  that  kind  has  been  had.  In  re  Mawson,  1  N.  B.  R.  271, 
Fed.  Cas.  No.  9,320 ;  In  re  Seckendorf,  1  N.  B.  R.  626,  Fed.  Cas.  No. 
12,600  ;  In  re  Vogel,  5  N.  B.  R.  396,  Fed.  Cas.  No.  16,984. 

Section  58,  however,  requires  that  creditors  shall  have  at  least  ten 
days'  notice  by  mail  of  "  all  examinations  of  the  bankrupt  "  ;  so  that 
such  an  examination  cannot  proceed  until  after  ten  days'  notice  to  all 
creditors,  unless  the  notice  of  application  for  the  bankrupt's  discharge 
mailed  to  creditors  contained  also  a  notice  of  the  bankrupt's  examina- 
tion. Hereafter  the  published  and  mailed  notices  of  application  for  a 
discharge  should  contain  a  notice  of  examination  of  the  debtor  to  avoid 


CHAP.  VII.]  IN   RE  FRANKLIN   SYNDICATE.  575 

the  necessity  of  further  notice  to  all  creditors  in  case  such  an  examina- 
tion is  allowed.  Only  one  such  examination  as  respects,  the  discharge 
should  ordinaril}-  be  had  ;  since  the  statute  in  requiring  that  all  cred- 
itors shall  have  notice  of  it,  presumably  intends  that  all  should  be 
equally  allowed  to  participate  in  it,  once  for  all,  and  not  further  harass 
the  bankrupt.  In  re  Vogel,  5  N.  B.  R.  396,  397,  Fed.  Gas.  No. 
16,984. 

For  the  present  examination,  if  a  new  notice  to  all  creditors  is  re- 
quired through  lack  of  previous  notice,  the  new  notices  and  examination 
must  be  at  the  expense  of  the  applicants  ;  for  which  I  allow  to  the 
referee  for  necessaiy  clerical  aid,  as  a  necessary  expense,  considering 
that  there  are  fifty  creditors  or  upwards,  $7.50,  which  the  applicants 
should  deposit  in  advance,  as  well  as  pay  the  cost  of  clerical  or  steno- 
graphic aid  in  taking  the  testimony  on  the  examination.1 


IN  RE  FRANKLIN   SYNDICATE. 

DISTRICT  COURT  FOR  THE  EASTERN  DISTRICT  OF  NEW  YORK, 
MARCH  1,  1900. 

[Reported  in  101  Federal  Reporter,  402.] 

THE  Franklin  Syndicate,  Incorporated,  and  William  F.  Miller  having 
been  adjudged  bankrupt,  and  a  receiver  appointed  by  the  court  to  take 
charge  of  their  property  pending  the  first  meeting  of  their  creditors  and 
the  selection  and  qualification  of  a  trustee,  one  of  the  creditors  pre- 
sented a  petition  for  the  examination  of  the  bankrupts ;  whereupon  the 
following  order  was  made  by  the  court :  — 

THOMAS,  District  Judge.  Upon  reading  and  filing  the  annexed  peti- 
tion of  Bernard  O'Kane,  a  creditor  of  the  aforesaid  bankrupts,  the 
proof  of  claim  hereto  annexed,  and  on  all  the  papers  and  proceedings 
herein,  and  on  motion  of  Belfer  &  Flash,  his  attorneys,  it  is  ordered 
that  the  examination  of  the  bankrupts,  and  of  all  material  and  neces- 
sary witnesses  herein,  and  the  taking  of  their  testimony,  as  prayed  for 
in  the  petition,  be,  and  the  same  hereby  is,  referred  to  Augustus  J. 
Koehler,  Esq.,  the  referee  in  bankruptcy  herein,  to  take  proof  under 
the  acts  of  Congress  relating  to  bankruptcy,  and  that  said  examina- 
tion be  directed  to  the  facts  and  circumstances  concerning  the  acts, 
conduct,  and  property  of  said  bankrupts  ;  also  concerning  the  cause  of 
bankruptcy,  the  conducting  of  the  bankrupts'  business,  the  disposition 
of  the  bankrupts'  property,  and  the  bankrupts'  dealings  with  creditors  ; 
and  let  subpccnas  issue  directing  the  bankrupts,  and  all  other  persons 
whose  testimony  may  be  material  and  necessary  herein,  to  submit  to 

1  See  further  Re  Mellen,  97  Fed.  Rep.  326. 


576  IN   RE   FRANKLIN    SYNDICATE.  [CHAP.  VII. 

examination  before  the  aforesaid  ^referee,  pursuant  to  the  rules  and 
practice  of  this  court,  and  for  such  other  and  further  relief  as  ma}'  be 
just  herein. 

Thereafter,  in  pursuance  of  the  above  order,  the  bankrupt  William 
F.  Miller  was  brought  before  the  referee  for  examination,  and,  after 
counsel  for  the  receiver  had  been  allowed  to  intervene  in  the  proceed- 
ing, counsel  for  the  bankrupt  interposed  an  objection  to  any  proceeding 
being  had  or  taken  under  the  order  of  court.  This  objection  was 
based  upon  the  ground  that  there  was  no  proof  that  the  creditor  who 
sought  the  examination  had  procured  the  allowance  of  his  claim  in 
bankruptcy ;  that,  if  such  claim  had  been  allowed,  its  allowance  was 
illegal,  and  not  in  pursuance  of  the  bankruptcy  law  ;  that  such  claim 
could  not  be  allowed  until  a  first  meeting  of  creditors  was  held ;  that 
the  bankrupt  had  a  right  to  object  to  the  claim,  and  contest  its  valid- 
ity, before  it  could  be  allowed,  of  which  right  he  could  not  be  fore- 
closed ;  that  there  could  be  no  examination  of  the  bankrupt  until  there 
had  been  a  first  meeting  of  creditors ;  that,  under  section  58  of  the 
bankruptcy  law,  there  could  be  no  examination  of  the  bankrupt  with- 
out notice  to  all  the  creditors  of  at  least  ten  days  ;  that  none  of  the  re- 
quirements provided  for  by  the  bankruptcy  law  and  the  rules  had  been 
complied  with ;  and  that  the  order  directing  the  examination  of  the 
bankrupt  was  wholly  void,  and  without  power,  and  that  the  referee 
had  no  jurisdiction  to  proceed  to  examine  the  bankrupt.  The  referee 
overruled  the  objection  to  the  validit}-  of  the  order,  on  the  ground  that 
he  had  no  power  or  jurisdiction  to  modify,  set  aside,  or  vacate  an  order 
made  b}-  the  judge  of  the  court.  Counsel  for  the  bankrupt,  and  counsel 
representing  various  parties  in  interest,  then  moved  for  a  continuance 
of  the  proceedings  until  a  meeting  of  creditors  should  have  been  held, 
and  renewed  their  objection  to  the  examination  of  the  bankrupt  on  the 
ground  that  the  statutory  notice  to  creditors  had  not  been  given.  The 
referee  reserved  his  decision  on  this  question,  and  adjourned  the  pro- 
ceedings to  a  future  da}-.  Exceptions  to  the  ruling  of  the  referee 
having  been  noted,  he  certified  the  record  of  the  proceedings  to  the 
court  for  review,  together  with  his  decision  on  the  question  reserved, 
wherein  he  said  :  — 

"  An  objection  of  a  nature  which  warrants  due  consideration  is  made 
by  the  attorney  for  the  bankrupt,  and  by  Mr.  Goldsmith,  of  counsel  for 
certain  creditors,  and  the  receiver,  and  other  attorneys,  representing 
different  creditors,  '  that  no  examination  can  be  had,  for  the  reason  that 
the  notice  required  by  Bankr.  Act,  §  58  a,  subd.  1,  was  not  given.'  I  do 
not  deem  the  objections  so  made  by  the  attorney  for  the  bankrupt,  as 
to  the  failure  of  such  notice  required  by  section  58  a,  subd.  1,  to  be 
available  to  him  ;  but  as  this  objection  also  emanates  from  Mr.  Gold- 
smith, representing  a  large  number  of  creditors,  as  well  as  representing 
the  petitioning  creditors  on  the  application  to  have  said  Miller  adjudi- 
cated a  bankrupt,  and  also  Mr.  Burr,  and  other  attorneys  representing 
different  creditors,  as  well  as  by  the  receiver,  and  affects  the  statutory 


CHAP.  VII.]  IN   RE   FELDSTEIN.  577 

rights  of  all  the  creditors  in  this  proceeding,  it  seems  to  me  that  this 
objection  should  be  considered,  in  view  of  the  rights  and  privileges  of 
all  the  creditors  concerned  and  interested  in  the  bankrupt's  estate  and 
property.  It  is  my  opinion,  upon  a  careful  examination  of  all  the  pro- 
ceedings before  me,  and  of  the  petition  and  order  of  February  16,  1900, 
which  directs  me  to  '  take  proof  under  the  acts  of  Congress  relating  to 
bankruptcy,  pursuant  to  the  rules  and  practice  of  this  court,'  that  this 
objection  to  the  examination  of  the  bankrupt,  for  failure  to  give  the 
notice  required  by  section  58  a,  subd.  1,  should  be  sustained,  and  that, 
before  proceeding  with  such  examination,  at  least  ten  days' notice  be 
given  by  mail  to  the  creditors  herein." 

THOMAS,  District  Judge.  The  order  for  the  examination  of  William 
F.  Miller  will  be  amended  so  as  to  authorize  and  to  limit  the  examina- 
tion solel}"  for  the  purpose  of  preparing  the  schedules,  and  the  ex- 
amination will  proceed  without  notice  to  creditors. 


IN  RE  FELDSTEIN. 

DISTRICT  COURT  FOR  THE  SOUTHERN  DISTRICT  OF  NEW  YORK, 
JULY  17,  1900. 

[Reported  in  103  Federal  Reporter,  269.] 

BROWN,  District  Judge.  Application  is  made  for  an  order  to  com- 
mit the  witness  A.  C.  Maynard  for  contempt  in  refusing  to  answer 
certain  questions  put  to  him  in  an  examination  at  the  instance  of  the 
receiver  of  the  bankrupt,  pending  before  the  referee,  which  questions 
the  witness  refused  to  answer  on  the  ground  that  his  answer  would  or 
might  tend  to  criminate  him. 

The  subjects  of  inquiry  were  some  thirty-five  checks,  amounting 
altogether  to  $72,486.53,  which  had  been  given  by  the  bankrupt  to  the 
witness  between  September  19, 1898,  and  August  10,  1899.  The  object 
of  the  examination  was  to  ascertain  the  consideration  for  those  checks, 
and  in  fact  to  ascertain  whether  they  were  not  given  for  gambling  debts 
which  the  trustee  might  recover  by  action  against  the  witness.  Two 
actions  of  that  kind  on  various  other  checks  had  already  been  brought 
by  the  bankrupt's  receiver  in  the  State  court,  and  are  still  pending 
there. 

By  the  Penal  Code  of  the  State  of  New  York,  gambling  is  a  criminal 
offence.  Section  340  provides  that  any  person  exacting  or  receiving 
anything  from  another  won  by  any  game  of  chance,  shall  forfeit  five 
times  the  value  thereof;  section  341  provides  that  n  person  who  wins 
or  loses  at  play  by  betting  at  any  time  the  surn  of  $25  or  upward, 
within  twenty-four  hours,  is  punishable  by  a  fine  of  five  times  the  value 
of  sum  so  lost  or  won.  Various  other  sections  make  it  penal  to  keep  a 


578  IN   HE   FELDSTEIN.  [t'HAP.  VIL 

room  or  building  to  use  for  gambling  purposes,  or  tables,  apparatus,  or 
other  implements  for  such  purposes. 

The  witness  had  stated  in  general  that  the  checks  referred  to  were 
given  to  him  in  payment  of  moneys  loaned  to  the  bankrupt  at  the 
times  mentioned  in  the  checks ;  or  rather  that  each  check  was  given 
the  next  time  he  saw  the  bankrupt  after  the  loan.  Numerous  other 
questions  were  asked,  some  of  which  were  answered,  the  purpose  of 
which  evidently  was  to  show  that  the  checks  were  really  given  to  pay 
gambling  debts,  and  that  the  so-called  loans  by  the  witness  were  a  de- 
vice to  conceal  that  fact.  Among  the  questions  which  the  witness 
declined  to  answer  were  :  "Whether  he  slept  at  any  other  place  than  his 
ordinary  place  of  abode  ;  whether  he  had  played  cards  with  the  bank- 
rupt ;  whether  he  had  seen  the  bankrupt  playing  roulette  during  the 
time  which  was  covered  by  the  checks ;  why  his  answer  to  such  ques- 
tions might  tend  to  criminate  him  ;  whether  during  this  period  he  was 
interested  in  an  establishment  where  roulette  was  played ;  whether  he 
had  seen  the  bankrupt  in  certain  premises  named  ;  whether  an)'  of  the 
checks  referred  to  were  given  to  the  witness  at  that  place  ;  whether  all 
the  checks  were  not  given  to  him  by  the  bankrupt  for  losses  incurred 
by  him  in  games  of  chance  at  the  establishment  conducted  by  the  wit- 
ness, or  in  which  the  witness  was  interested ;  whether  the  witness  had 
any  business  at  this  period  other  than  the  carriage  business  in  which  he 
had  stated  he  was  interested  ;  whether  he  had  ever  seen  the  bankrupt 
use  any  of  the  money  loaned  to  him  by  the  witness  for  any  purpose; 
whether  the  greater  part  of  the  money  was  not  used  in  settling  up 
losses  which  the  bankrupt  had  incurred  in  a  gaming  establishment  in 
which  the  witness  was  interested,  and  the  checks  given  on  each  occasion 
of  a  loss ;  whether  the  bankrupt  had  won  any  money  of  the  witness 
during  the  same  period  ;  whether  during  this  period  the  witness  resided 
temporarily  or  otherwise  at  the  place  indicated  ;  whether  the  bankrupt 
was  not  in  the  habit  of  continually  during  that  period  visiting  the  prem- 
ises and  gambling  there  with  the  witness. 

It  is  evident  from  these  questions  that  the  object  of  the  examination 
was  to  require  the  witness  to  furnish  evidence  which  would  enable  the 
receiver  to  recover  back  mone}1  of  the  bankrupt  lost  in  gambling  and 
paid  by  him  to  the  witness.  Under  the  Penal  Code  of  this  State  such 
acts  are  made  punishable  as  offences.  The  witness  is  therefore  pro- 
tected not  only  by  the  constitution  of  the  State,  but  also  by  the  United 
States  Constitution,  from  any  compulson-  answers  to  such  inquiries, 
unless  perfect  statutory  immunity  is  afforded  to  the  witness  in  answer- 
ing such  questions.  Section  7  a  (9)  of  the  present  bankrupt  act  pro- 
vides as  respect  the  bankrupt  himself,  that  "  no  testimoii)-  given  by  him 
shall  be  offered  in  evidence  against  him  in  any  criminal  proceeding." 
This  provision,  even  if  applicable  in  favor  of  a  witness  (which  it  is  not 
in  terms),  seems  to  be  no  stronger  or  more  effective  as  a  protection  than 
section  860  of  the  Revised  Statutes,  which  in  Counselman  v.  Hitchcock, 
142  U.  S.  547,  12  Sup.  Ct.  195,  35  L.  Ed.  1110,  was  on  full  discussion 


CHAP.  VII.]  IN   RE   FELDSTEIN.  579 

held  insufficient.  This  was  followed  in  People  v.  Forbes,  143  N.  Y.  219, 
38  N.  E.  303,  and  reiterated  in  Brown  v.  Walker,  161,  U.  S.  591,  16 
Sup.  St.  644,  40  L.  Ed.  819.  The  same  ruling  upon  clauses  of  this 
character  has  been  made  in  several  bankruptcy  cases.  In  re  Hathorn, 
2  Am.  Bankr.  R.  298  ;  In  re  Rosser,  2  Am.  Bankr.  R.  755,  96  Fed. 
305  ;  In  re  Scott,  1  Am.  Bankr.  49,  95  Fed.  815.  Section  342  of  the 
New  York  Penal  Code  and  section  10  of  the  Code  of  Criminal  Pro- 
cedure, are  no  broader  in  their  provisions  than  those  above  referred 
to,  and  are  consequent!}"  insufficient  to  afford  the  complete  immunity 
required  ln-  the  Constitution.  In  the  case  of  Brown  v.  Walker,  how- 
ever, the  statutory  exemption  had  been  extended  by  amendment  so  as 
to  afford  complete  immunity  from  prosecution  in  respect  to  the  sub- 
jects of  the  witness's  testimony  ;  and  on  the  ground  of  that  extension 
alone  the  statutory  immunity  of  the  witness  was  held  to  be  complete, 
and  he  was  accordingly  held  bound  to  answer. 

By  a  recent  similar  amendment  in  the  law  of  the  State  of  New  York, 
applicable  to  the  examination  of  witnesses  in  certain  proceedings  to 
prevent  monopolies,  etc.  (Laws  1899,  c.  609,  §  6),  complete  immunity 
from  prosecution  is  similarly  afforded  ;  and  on  that  ground  it  was 
recently  decided  by  Chester,  J.,  in  the  Ice  Cases,  so-called  (Morse  v. 
Nussbaum,  32  Misc.  Rep.  1,  66  N.  Y.  Supp.  129),  that  the  witness  must 
answer. 

There  is  no  general  provision,  however,  in  the  laws  of  the  State  of 
New  York  or  in  the  statutes  of  the  United  States  which  furnishes  im- 
munity from  prosecution  to  a  witness  interrogated  in  respect  to  his 
participation  in  gambling  or  moneys  thereby  acquired.  At  most  the 
exclusion  extends  only  to  the  particular  evidence  given  b}*  the  witness, 
and  this  being  held  to  be  insufficient  according  to  the  authorities  above 
cited,  the  witness  must  be  held  privileged  from  testifying  to  the  mat- 
ters certified.1 

1  The  Circuit  Court  of  Appeals  for  the  Ninth  Circuit  reached  a  contrary  conclusion 
in  Mackel  v.  Rochester,  102  Fed.  Rep.  314,  but  neither  Counselman  v.  Hitchcock,  142 
U.  S.  547,  nor  the  decisions  of  district  courts  cited  in  Re  Feldstein  were  referred  to. 
The  court  assumed  that  if  the  bankrupt  in  answering  incriminating  questions  "  ex- 
poses himself  to  prosecution  and  penalty,  he  is  within  the  protection  of  the  statute, 
and  upon  any  such  prosecution  is  authorized  to  plead  as  a  bar  thereof  that  under  the 
compulsion  of  this  section  he  gave  the  criminating  testimony."  The  court,  therefore, 
relied  on  Brown  v.  Walker,  161  U.  S.  591,  and  held  the  witness  must  answer.  It 
seems  obvious,  however,  in  view  of  the  decision  of  Couuselman  v.  Hitchcock,  that  the 
assumption  of  the  court  is  unwarranted. 


580  IN    EE   PITTELK'OW.  [CHAP.  VII. 


IN  RE  PITTELKOW. 

DISTRICT  COURT  FOR  THE  EASTERN  DISTRICT  OP  WISCONSIN, 
APRIL  6,  1899. 

[Reported  in  92  Federal  Reporter,  901.] 

ON  petition  by  the  trustee  for  an  order  restraining, the  commence- 
ment of  foreclosures  by  mortgagees,  and  for  authorit}'  to  sell  the  various 
parcels  of  real  estate  free  of  incumbrances,  preserving  the  rights  of  all 
lien  claimants  against  the  proceeds. 

The  petition  states  the  appraised  value  of  the  real  estate,  comprising 
numerous  parcels,  at  $107,000,  and  the  aggregate  amount  of  mortgages 
at  about  $80,000;  that  there  are  thirty-nine  separate  mortgages,  and 
immediate  foreclosure  suits  are  threatened,  of  which  the  expense  w,ould 
aggregate  several  thousand  dollars  ;  that  the  claims  of  unsecured  cred- 
itors amount  to  about  $60,000,  and  a  sale  subject  to  the  mortgages  and 
foreclosure  proceedings  would  yield  little  or  nothing  for  the  general 
estate.  An  order  being  entered  thereupon  citing  the  mortgagees  to 
show  cause  why  relief  should  not  be  granted  as  prayed  for,  objections 
to  the  jurisdiction  were  raised  by  sundry  mortgagees,  for  whom  special 
appearance  was  made  for  the  purpose,  but  the  matter  was  submitted 
generally  on  behalf  of  others. 

Bloodgood,  Kemper,  &  Bloodgood,  for  trustee. 

N~.  Pereles  &  Sons,  Moritz  Wittig,  e/n,  Sheridan  &  Wollaeger,  and 
others,  for  mortgagees. 

SEAMAN,  District  Judge.  Upon  the  general  question  of  jurisdiction, 
I  am  of  opinion  that  the  District  Court  is  vested  with  exclusive  juris- 
diction over  the  property  of  the  bankrupt,  and  with  sufficient  equity 
powers  to  have  all  claims  by  mortgagees  brought  in  and  administered ; 
that  sales  may  be  authorized,  under  proper  circumstances,  free  and 
clear  from  the  mortgages,  or  other  liens,  by  preserving  and  transferring 
the  claims  to  the  fund  thus  provided  ;  and  that  the  commencement  of 
foreclosure  proceedings  can  be  restrained  to  that  end.  The  decisions 
under  the  bankrupt  acts  of  1841  and  1867  clearly  sustain  each  of  these 
propositions.  In  the  Supreme  Court,  the  cases  of  In  re  Christ}',  3  How. 
292,  Nugent  v.  Boyd,  3  How.  426,  and  Houston  v.  Bank,  6  How.  486, 
established  the  doctrine  in  reference  to  the  Act  of  1841  ;  and  under  the 
Act  of  1867  the  same  view  was  declared  in  Ra}'  v.  Norseworthy,  23 
Wall.  128,  and  in  Insurance  Co.  v.  Murphy,  111  U.  S.  738,  4  Sup.  Ct. 
679.  The  decisions  in  the  circuit  and  district  courts  under  the  latter 
Act  were  uniform  in  the  same  line,  and  the  following  are  sufficient  cita- 
tions :  In  re  Kirtland,  10  Blatchf.  515,  Fed.  Cas.  No.  7,851 ;  Sutherland 
v.  Iron  Co.,  9  N.  B.  R.  298,  Fed.  Cas.  No.  13,643  ;  In  re  Sacchi,  ID 
Blatchf.  29,  Fed.  Cas.  No.  12,200;  In  re  Brinkman,  7  N.  B.  R.  421, 


CHAP.  VII.]  IN   RE   PITTELKOW.  581 

Fed.  Cas.  No.  1884;  In  re  Kahley,  2  Biss.  383,  Fed.  Gas.  No.  7,593  ; 
Fosters.  Ames,  1  Low.  313,  Fed.  Cas.  No.  4,965  ;  In  re  Mead,  58  Fed. 
312.  The  Act  of  1898  equally  establishes  paramount  jurisdiction  in 
its  general  provisions  as  a  national  bankruptcy  enactment.  Its  inter- 
pretation in  that  view  by  this  court  in  Re  Bruss-Ritter  Co.,  90  Fed. 
651,  has  support  in  an  unbroken  current  of  recent  decisions  in  circuit 
courts  of  appeals  and  in  the  district  courts.  The  provisions  confer- 
ring equity  powers  and  jurisdiction  over  mortgagees  and  all  classes  of 
lien  claimants,  and  over  sales  by  trustees,  are  at  least  as  clear  as  the 
corresponding  provisions  of  the  former  Acts  upon  which  the  doctrine 
was  established  as  above  referred  to.  Whatever  may  be  the  construc- 
tion placed  upon  definitions  of  jurisdiction  contained  in  section  23,  I 
am  of  opinion  that  the  section  is  not  applicable,  in  any  view,  to  mort- 
gages of  real  estate,  where  possession  of  the  res  is  vested  in  the  Bank- 
ruptcy Court,  and  is  held  in  fact  by  the  trustee  ;  the  distinctions  being 
well  stated  by  Judge  Baker  in  Re  Goodykoontz  (Carter  v.  Hobbs,  92 
Fed.  594),  in  opinion  of  March  10,  1899.  In  section  57  jurisdiction 
over  such  claimants  is  clearly  conferred,  is  necessarily  complete ;  and, 
in  accord  with  the  uniform  rule  in  such  cases,  there  can  be  no  inter- 
ference with  the  possession,  and  no  foreclosure  proceedings,  where  the 
trustee  is  an  indispensable  party,  except  upon  leave  of  the  Bankruptcy 
Court.  See  cases  cited  supra.  It  is,  however,  the  duty  of  the  court 
to  consider  the  interests  of  mortgagees  and  other  secured  creditors  as 
well  as  those  of  the  general  creditors;  and  unless  it  is  apparent  (1)  that 
the  mortgaged  premises  in  the  given  case  will  probably  realize  upon  a 
sale  an  amount  substantially  in  excess  of  the  mortgage,  and  (2)  that 
there  are  no  complications,  by  dower  rights,  conveyances,  or  other 
conditions,  which  require  foreclosure  under  the  mortgage,  the  power  to 
proceed  summarily  by  sale,  including  the  interest  of  the  mortgagee, 
should  not  be  exercised.  In  re  Taliafero,  3  Hughes,  422,  Fed.  Cas. 
No.  13,736  ;  In  re  Kahley,  2  Biss.  383;  Foster  v.  Ames,  1  Low.  313, 
Fed.  Cas.  No.  4,965.  Certainly  if  foreclosure  is  necessary  to  bar  rights 
which  cannot  be  brought  before  the  court  in  the  bankruptcy  proceed- 
ing, the  mortgagee  should  have  leave  to  that  end,  on  proper  showing 
of  cause,  otherwise  he  would  be  compelled  to  bid  for  the  protection  of 
his  mortgage  interest,  without  the  benefits  of  complete  foreclosure.  On 
the  other  hand,  in  a  simple  case  in  which  the  mortgagee  and  the  owner 
of  the  equity  are  before  the  court,  or  may  be  brought  in,  a  sale  by 
order  of  the  Bankruptcy  Court,  with  provision  saving  the  rights  of  the 
mortgagee  to  bid  up  to  the  ascertained  amount  of  his  mortgage  without 
advancing  the  mone}',  except  for  expenses,  would  be  beneficial  to  all 
parties  and  effective.  No  sale  can  be  made  which  affects  the  rights  of 
mortgagees  or  other  lienholders  without  notice  to  them,  and  "due  op- 
portunity to  defend  their  interests."  Ray  v.  Norseworthy,  23  Wall. 
128,  135;  Insurance  Co.  ?;.  Murphy,  111  U.  S.  738,  742,  4  Sup.  679. 
The  power  to  order  a  sale  free  of  incumbrances  ought  not  to  be  exer- 
cised in  anv  instance  unless  the  court  is  "accurately  informed  as  tc  the 


582  IN   EE   PITTELKOW.  [CHAP.  VII. 

facts,"  and  all  parties  in  interest  have  full  opportunitj'  to  be  beard,  and 
the  respective  interests  are  ascertained.     In  re  Taliafero,  3  Hughes, 
422,  Fed.  Cas.  No.  13,736,  opinion  by  the  chief  justice  ;   In  re  Sacchi, 
10  Blatchf.  29,  Fed.  Cas.  No.  12,200,  on  review  by  Woodruff,  C.  J. 
M}-  conclusions  are  :  — 

1.  That  jurisdiction  exists  to  restrain  mortgagees,  for  a  reasonable 
time,  from  commencing  foreclosure  proceedings,  and  to  order  sales 
free  from  incumbrances,  in  special  instances,  after  due  hearing,  where 
the  rights  are  clear. 

2.  That  sufficient  facts  appear  to  enjoin  all  the  mortgagees  or  lien 
claimants  who  were  duly  cited  herein  from  instituting  foreclosure  pro- 
ceedings until  the  further  order  of  the  court,  but  with  leave  to  any 
mortgagee  or  lien  claimant  to  present  his  petition  before  the  referee  to 
be  heard  respecting  any  alleged  necessity  for  immediate  foreclosure 
or  of  unreasonable  delay  on  the  part  of  the  trustee,  for  report  to  the 
court  whether  the  petitioner  or  petitioners  should  be  exempted  from 
the  order. 

3.  That  no  general  order  for  sale  of  real  estate  by  the  trustee,  free 
from  incumbrance,  can  be  entered  on  the  facts  stated  ;  and  sufficient 
information  does  not  appear  to  order  such  sale  in  any  special  instance. 

4.  That  the  petition  of  the  trustee,  and  all  matters  relating  to  sales 
of  the  real  estate,  either  subject  to  or  free  from  incumbrances,  and  of 
claims  by  mortgagees  or  other  lien  holders,  be  referred  to  the  referee,  to 
be  heard  upon  petitions  and  answers,  and  notice  to  all  parties  in  in- 
terest as  the  referee  ma}-  prescribe,  consistently  with  the  general  orders, 
and  reported  to  the  court  with  his  recommendations. 

5.  That  sales  be  made,  without  unnecessary  delay,  of  all  the  interest 
of  the  bankrupt  in  real  estate  not  liable  to  sale  under  special  order  as 
above  indicated. 

Let  orders  enter  accordingly.1 

1  To  the  cases  cited  by  the  court,  the  following  in  accord  with  them  may  be  added : 
Re  McClellan,  1  B.  R.  389;  Re  Barrow,  1  B.  R.  481 ;  Re  Columbian  Metal  Works, 
3  B.  R.  75 ;  Re  Etheridge  Furniture  Co.,  92  Fed.  Rep.  329 ;  Re  Worland,  92  Fed. 
Rep.  893;  Southern  Loan  &  Trust  Co.  v.  Benbow,  96  Fed.  Rep.  514;  Re  Sanborn,  96 
Fed.  Rep.  551 ;  Re  Matthews,  109  Fed  Rep.  603.  Conf.  Re.  Styer,  98  Fed.  Rep.  290. 

In  England  the  Bankruptcy  Court  does  not  exercise  this  power.  Ex  parte  Rum- 
boll,  6  Ch.  App.  842 ;  Ex  parte  Pannell,  6  Ch.  D.  335 ;  Ex  parte  Fletcher,  10  Ch.  D. 
610;  Ex  parte  Hirst,  11  Ch.  D.  278. 

In  the  absence  of  special  order  by  the  Bankruptcy  Court,  a  mortgagee  or  pledgee 
may  enforce  his  rights  against  the  trustee  in  bankruptcy  in  the  same  way  as  against 
the  original  debtor.  Yeatman  v.  Savings  Institution,  95  U.  S.  764;  Re  Porter,  109 
Fed.  Rep.  Ill ;  Harvey  v.  Smith,  61  N.  E.  Rep.  217  (Mass.).  Conf.  Re  Cobb,  96  Fed. 
Rep.  821. 


CHAP..VII.]  BRYAN   V.   BERNHEIMER.  583 


BRYAN  v.   BERNHEIMER. 

SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  31,  1900- 
APRIL  15,    1901. 

[Reported  in  181  United  States,  188.] 

MR.  JUSTICE  GRAY,  after  stating  the  case,  delivered  the  opinion  of 
the  court. 

The  general  assignment,  made  by  Abraham  to  Davidson,  did  not 
constitute  Davidson  an  assignee  for  value,  but  simply  made  him  an 
agent  of  Abraham  for  the  distribution  of  the  proceeds  of  the  property 
among  Abraham's  creditors.  This  general  assignment  was  of  itself  an 
act  of  bankruptcy,  without  regard  to  the  question  whether  Abraham 
was  insolvent.  Bankrupt  Act  of  Julv  1,  1898,  c.  541,  §  3  ;  West  Co.  v. 
Lea,  174  U.  S.  590. 

Nine  days  after  this  assignment,  certain  creditors  of  Abraham  filed 
a  petition  in  the  District  Court  of  the  United  States  to  have  him  ad- 
judged a  bankrupt,  alleging  this  assignment  as  an  act  of  bankruptcy. 
After  the  filing  of  that  petition,  Davidson  sold  the  property  to  Bern- 
heimer,  and  the  District  Court,  after  the  adjudication  of  bankruptcy, 
and  on  petition  of  the  same  creditors,  alleging  that,  unless  the  court 
made  an  order  requiring  the  property  to  be  taken  immediate  possession 
of,  the  petitioners  and  all  other  creditors  of  Abraham  would  be  greatly 
damaged,  and  their  dividends  out  of  the  estate  generally  lessened,  and 
praying  for  an  order  to  the  marshal  to  take  possession  of  the  property, 
ordered  the  marshal  to  do  so ;  and  on  his  petition  for  instructions  as 
to  the  property  so  seized,  ordered  notice  to  Bernheimer  to  appear  in 
ten  days,  and  to  propound  any  claim  that  he  had  to  the  property,  or, 
on  failing  to  do  so,  be  decreed  to  have  no  right  to  it.  In  obedience  to 
that  order,  Bernheimer  came  into  court,  and  propounded  a  claim  to  the 
property  under  the  sale  by  Davidson  to  him,  alleging  that  if  he  was 
deprived  of  it,  and  Davidson  was  allowed  also  to  keep  the  price  paid, 
his  position  would  be  one  of  great  hardship ;  submitting  his  claim  to 
the  court,  and  asking  it  to  make  such  orders  as  might  be  necessary  for 
his  protection  ;  and  praying  that  the  creditors  be  remitted  to  their 
claim  against  Davidson  for  such  price,  or,  if  the  claimant  was  mistaken 
in  the  relief  he  prayed  for,  for  an  order  that  such  price  be  paid  by 
Davidson  into  court  and  paid  over  to  the  claimant,  who  thereupon 
offered  to  rescind  the  purchase  and  to  waive  all  further  claim  to  the 
property. 

The  District  Court  sustained  a  demurrer  of  the  petitioning  creditors 
to  this  claim,  and  decreed  that  Bernheimer  had  no  title  superior  to  the 
title  of  the  bankrupt  estate.  On  his  appeal  from  that  decree  the  Circuit 
Court  of  Appeals  reversed  it,  and  ordered  the  property  to  be  restored 


584  BRYAN  V.  BERNHEIMER.  [CHAP.  VII. 

to  him,  with  costs,  counsel  fees,  expenses  and  damages,  occasioned  to 
him  by  the  seizure.  The  marshal,  on  behalf  of  the  petitioning  credit- 
ors, thereupon  obtained  this  writ  of  certiorari. 

The  case,  as  the  opinion  of  the  Circuit  Court  of  Appeals  states, 
presents  this  question  :  "  Did  the  District  Court,  as  a  court  of  bank- 
ruptcy, have  jurisdiction  to  try  the  title  to  the  goods  involved  in  this 
controversy  by  summary  proceedings,  seizing  the  goods,  and  requiring 
Louis  Bemheimer,  the  purchaser  at  the  assignee's  sale,  by  a  rule  en- 
tered against  him,  to  appear  before  that  court  within  ten  days  and  pro- 
pound any  claim  he  had  to  the  goods,  or  any  part  thereof;  or,  failing 
therein,  that  he  be  decreed  to  have  no  claim  or  right  thereto?  " 

The  Bankrupt  Act  of  1898,  §  2,  invests  the  courts  of  bankruptcy 
"  with  such  jurisdiction,  at  law  and  in  equit}',  as  to  enable  them  to 
exercise  original  jurisdiction  in  bankruptc}'  proceedings,  in  vacation  in 
chambers,  and  during  their  respective  terms  "  ;  to  make  adjudications 
of  bankruptc}' ;  and,  among  other  things,  (3)  appoint  receivers  or  the 
marshals,  upon  application  of  the  parties  in  interest,  in  case  the  courts 
shall  find  it  absolutely  necessary  for  the  preservation  of  estates  to  take 
charge  of  the  property  of  bankrupts  after  the  filing  of  the  petition  and 
until  it  is  dismissed  or  the  trustee  is  qualified  ;  "  "  (6)  bring  in  and 
substitute  additional  persons  or  parties  in  proceedings  in  bankruptcy 
when  necessary  for  the  complete  determination  of  a  matter  in  contro- 
versy ;  (7)  cause  the  estates  of  bankrupts  to  be  collected,  reduced  to 
mone}'  and  distributed,  and  determine  controversies  in  relation  thereto, 
except  as  herein  otherwise  provided."  The  exception  refers  to  the 
provisions  of  section  23,  b}r  virtue  of  which,  as  adjudged  at  the  last 
term  of  this  court,  the  District  Court  can,  by  the  proposed  defendant's 
consent,  but  not  otherwise,  entertain  jurisdiction  over  suits  brought  by 
trustees  in  bankruptcy  against  third  persons  to  recover  property 
fraudulent^  conveyed  by  the  bankrupt  to  them  before  the  institution  of 
proceedings  in  bankruptcy.  Bardes  v.  Ha  warden  Bank,  178  U.  S. 
524 ;  Mitchell  v.  McClure,  178  U.  S.  539  ;  Hicks  v.  Knost,  178  U.  S. 
541. 

The  present  case  involves  no  question  of  jurisdiction  over  a  suit  by 
a  trustee  against  a  person  claiming  an  adverse  interest  in  himself. 

Nor  is  it  a  petition  under  section  3  e  or  section  69  of  the  Bankrupt 
Act  of  1898.  each  of  which  relates  to  applications  to  take  charge  of  and 
hold  property  of  a  bankrupt  after  the  petition  and  before  the  adjudica- 
tion in  bankruptc}'.  The  provisions  of  those  sections,  requiring  the 
applicants  to  give  bond  for  damages,  have  no  application  to  a  case 
where  there  has  been  an  adjudication  of  bankruptcy,  and  the  property 
thereby  brought  within  the  jurisdiction  of  the  court  of  bankruptc3\ 

But  it  is  a  petition  filed  after  an  adjudication  of  bankruptcy  and  be- 
fore the  appointment  of  a  trustee  ;  and  must  rest  on  the  authority  given 
to  the  court  of  bankruptcj',  by  clause  3  of  section  2,  to  "  appoint  re- 
ceivers or  the  marshals,  upon  application  of  parties  in  interest,  in  case 
the  courts  will  find  it  absolutely  necessary  for  the  preservation  of 


CHAP.  VII.]  BRYAN   V.    BERNHEIMER.  585 

estates,  to  take  charge  of  the  property  of  bankrupts  after  the  filing  of 
the  petition  and  until  it  is  dismissed  or  the  trustee  is  qualified."  Does 
this  include  property  of  the  bankrupt  in  the  hands  of  third  persons? 

The  Bankrupt  Act  of  March  2,  1867,  c.  176,  §  40,  provided  that 
upon  the  filing  of  a  petition  for  an  adjudication  of  involuntary  bank- 
ruptcy, if  probable  cause  should  appear  for  believing  that  the  debtor 
was  about  to  remove  or  conceal,  or  to  make  an}*  fraudulent  convej'ance 
of  his  property,  the  court  might  issue  a  warrant  to  the  marshal  com- 
manding him  "  forthwith  take  possession  provisionally  of  all  the  prop- 
erty and  effects,  of  the  debtor,  and  safely  keep  the  same  until  the 
further  order  of  the  court."  14  Stat.  536,  Rev.  Stat.  §  5024.  It  was 
held  by  the  Court  of  Appeals  of  New  York  that  this  did  not  authorize 
the  marshal  to  take  possession  of  the  goods  of  the  bankrupt  in  posses- 
sion of  third  persons  claiming  title  thereto.  Doyle  v.  Sharp,  74  N.  Y. 
154.  But  that  decision  was  overruled  by  this  court,  and  Mr.  Justice 
Miller  in  delivering  its  opinion  said  :  — 

"  The  act  of  Congress  was  designed  to  secure  the  possession  of  the 
property  of  the  bankrupt,  so  that  it  might  be  administered  under  the 
proceedings  in  the  bankrupt  court.  Between  the  first  steps  initiating 
proceedings  in  the  bankrupt  court  and  the  appointment  of  the  assignee, 
a  considerable  time  often  passes.  During  that  time,  the  propert}'  of 
the  bankrupt,  especially  in  a  case  commenced  by  creditors,  ma}'  be 
surreptitiousl}'  conveyed  bej'ond  the  reach  of  the  court  or  of  the  as- 
signee, to  whose  possession  it  should  come  when  appointed.  If  the 
bankrupt  does  not  voluntarih'  aid  the  court,  or  is  inclined  to  defeat 
the  proceedings,  he  can,  with  the  aid  of  friends  or  irresponsible  per- 
sons, sell  his  movable  property  and  put  the  monej'  in  his  pocket,  or 
secrete  his  goods  or  remove  them  beyond  the  reach  of  his  assignee 
or  the  process  of  the  court  and  defy  the  law.  The  evidence  in  this 
case  shows  the  manner  in  which  this  can  be  done.  It  was  the  purpose 
of  the  act  of  Congress  to  prevent  this  evil.  It  therefore  provides  that, 
as  soon  as  the  petition  in  bankruptcy  is  filed,  the  court  may  issue  to 
the  marshal  a  provisional  warrant  directing  him  to  take  possession 
of  the  property  and  effects  of  the  bankrupt  and  hold  them  subject  to 
the  further  order  of  the  court.  To  have  limited  this  right  or  duty  of 
seizure  to  such  property  as  he  might  find  in  the  actual  possession  of  the 
bankrupt  would  have  manifestly  defeated  in  many  instances  the  pur- 
poses of  the  writ.  There  is  therefore  no  such  limitation  expressed  or 
implied.  As  in  the  writ  of  attachment,  or  the  ordinary  execution  of  a 
judgment  for  the  recovery  of  money,  the  officer  is  authorized  to  seize 
the  property  of  the  defendant,  wherever  found;  so  here  it  is  made  his 
duty  to  take  into  his  possession  the  property  of  the  bankrupt  wherever 
he  may  find  it.  It  is  made  his  duty  to  collect  and  hold  possession  until 
the  assignee  is  appointed  or  the  property  is  released  by  some  order  of 
the  court,  and  he  would  ill  perform  that  duty  if  he  should  accept  the 
statement  of  every  man  in  whose  custody  he  found  the  property  which 
he  believed  would  belong  to  the  assignee,  when  appointed,  as  a  suffl- 


586  BRYAN   V.   BERNHEIMER.  [CHAP.  VII. 

cient  reason  for  failing  to  take  possession  of  it."  Sharpe  v.  Doyle, 
101  U.  S.  686,  689,  690.  A  like  decision  was  made  in  Feibelman  v. 
Packard,  109  U.  S.  421. 

These  considerations  are  equally  applicable  to  an  application,  after 
the  adjudication  in  bankruptcy  and  before  the  qualification  of  a  trustee, 
for  an  appointment  of  the  marshal,  under  clause  3  of  section  2  of  the 
Bankrupt  Act  of  1898,  to  take  charge  of  "  the  propert\r  "  of  the  bank- 
rupt "  after  the  filing  of  the  petition  arid  until  it  is  dismissed  or  the 
trustee  qualified."  It  is  true  that  under  this  provision  the  appointment 
is  only  to  be  made  "  in  case  the  courts  shall  find  it  absolutely  necessary 
for  the  preservation  of  the  estates."  But  that  condition  of  things  is 
shown,  in  the  present  case,  by  the  allegation  of  the  application,  and 
the  finding  of  the  court  of  bankruptcy,  that  it  was  necessary  to  the 
interest  of  the  creditors  of  the  bankrupt  to  take  immediate  possession 
of  his  property. 

In  the  opinion  in  Bardes  v.  Hawarden  Bank,  178  U.  S.  524,  538,  it 
was  indeed  said :  "  The  powers  conferred  on  the  courts  of  bankruptcy 
by  clause  3  of  section  2,  and  by  section  69,  after  the  filing  of  a  petition 
in  bankruptcy,  and  in  case  it  is  necessary  for  the  preservation  of  prop- 
erty of  the  bankrupt,  to  authorize  receivers  or  the  marshals  to  take 
charge  of  it  until  a  trustee  is  appointed,  can  hardly  be  considered  as 
authorizing  the  forcible  seizure  of  such  property  in  the  possession  of  an 
adverse  claimant,  and  have  no  bearing  upon  the  question  in  what 
courts  the  trustee  may  sue  him."  But  the  remark,  "  can  hardly  be 
considered  as  authorizing  the  forcible  seizure  of  such  property  in  the 
possession  of  an  adverse  claimant,"  was  an  inadvertence,  and  upon  a 
question  not  arising  in  the  case  then  before  the  court,  which  related  ex- 
clusively to  jurisdiction  of  a  suit  by  the  trustee  after  his  appointment. 

Moreover,  the  consent  of  the  proposed  defendant,  Bernheimer,  to 
this  mode  of  proceeding  is  shown  by  the  terms  of  his  claim,  in  which, 
not  protesting  against  the  jurisdiction  of  the  court  of  bankruptcy,  he 
expressly  submitted  his  claim  to  that  court,  and  asked  for  such  orders 
as  might  be  necessary  for  his  protection. 

Considering  that  the  property  was  not  held  by  Davidson  under  any 
claim  of  right  in  himself,  but  under  a  general  assignment  which  was 
itself  an  act  of  bankruptcy ;  that  no  trustee  had  been  appointed;  that 
the  sale  by  Davidson  to  Bernheimer  was  made  after  and  with  knowl- 
edge of  the  petition  in  bankruptcy  ;  and  that  Bernheimer  consented  to 
the  form  of  proceedings  ;  we  are  of  opinion  that  Bernheimer  had  no 
title  superior  to  the  title  of  the  bankrupt's  estate ;  that  the  District 
Court,  as  a  court  of  bankruptcy,  was  authorized  so  to  decide  in  this 
proceeding  ;  and  that  the  decree  of  the  Circuit  Court  of  Appeals,  direct- 
ing the  goods  to  be  restored  to  Bernheimer,  must  be  reversed. 

The  question  remains  what  further  order  should  be  made.  It  is 
manifestly  inequitable  that  Bernheimer  should  lose  both  the  goods 
themselves  and  the  price  which  he  had  paid  to  Davidson  for  them. 
His  equities  in  that  respect,  and  the  rightful  claim  of  the  bankrupt's 


/ 

CHAP.  VII.]  MUELLEK   V.   NUGENT.  587 

creditors,  may  depend  upon  many  circumstances,  and  can  be  best 
settled  in  the  District  Court,  which  has  authority,  under  section  2  (6) 
of  the  Bankruptcy  Act,  to  bring  in  Davidson  if  necessary. 


MUELLER  v.  NUGENT. 

SUPREME  COURT  OF  THE  UNITED  STATES,  NOVEMBER  13,  1901- 
JANUARY  20,  1902. 

[Reported  in  184  United  States,  I.] 

EDWARD  B.  NUGENT  was  adjudicated  a  bankrupt  on  an  involuntary 
petition,  March  23,  1900.  Arthur  E.  Mueller  was  appointed  trustee,  ^» 

and  filed  a  petition  before  the  referee  and  praying  for  an  order  restraining       .  *£  V  Y^ 
William  T.  Nugent,  son  of  the  bankrupt,  from  disposing  of  a  sum  of  /-..  ^*fa 
$14,435.45,  received   from  the  bankrupt,  and  for  an  order  requiring'^ 
William  T.  Nugent  to  pa}-  the  money  to  the  trustee. 

William  T.  Nugent  appeared  simply  to  dispute  the  jurisdiction  of  ^A  If 
the  court.     On  a  hearing  it  appeared  that  the  money  in  question  was     TU 
obtained  03-  the  bankrupt  partly  from  a  mortgage  of  his  house  and  land 
on  February  9,  1900,  and  partly  from  a  sale  of  his  stock  of  merchandise  «/•.<' ' 
on  February  19,  1900,  three  hours  before  the  petition  in  bankruptcy 
was   filed.     The   money  so  obtained   was  turned  over  to  William  T. 
Nugent,  as  agent  for  his  father,  before  the  filing  of  the  petition. 

The  referee  thereupon  ordered  William  T.  Nugent  to  pa}-  over  the 
mone3'  in  question,  and  on  his  failure  to  do  so  adjudged  him  in  con- 
tempt and  ordered  his  imprisonment  until  he  complied  with  the  order.  \  itl 
The  District  Judge  affirmed  this  order,  but  on  petition  for  review,  the  U 
Circuit  Court  of  Appeals  reversed  it.  105  Fed.  Rep.  581.  The  writ  of  C^ 
certiorari  was  then  granted  by  this  court.  180  U.  S.  640. 

Mr.  William  W.  Watts  for  Mueller.  Mr.  John  Richard  Watts  was 
on  his  brief. 

Mr.  W.  M.  Smith  for  Nugent  submitted  on  his  brief,  on  which  was 
also  Mr.  Fred.  Forcht,  Jr. 

Mr.  Chief  Justice  FULLER  delivered  the  opinion  of  the  court. 

The  question  reduces  itself  to  this:  Has  the  bankruptcy  court  the 
power  to  compel  the  bankrupt,  or  his  ageni,  to  deliver  up  money  or 
other  assets  of  the  bankrupt,  in  his  possession  or  that  of  some  one  for 
him.  on  petition  and  rule  to  show  cause?  Does  a  mere  refusal  by  the 
bankrupt  or  his  agent  so  to  deliver  up  oblige  the  trustee  to  resort  to  a 
plenary  suit  in  the  Circuit  Court  or  a  State  court,  as  the  case  may  be? 

If  it  be  so,  the  grant  of  jurisdiction  to  cause  the  estates  of  bankrupts 
to  be  collected,  and  to  determine  controversies  relating  thereto,  would 
be  seriously  impaired,  and,  in  many  respects,  rendered  practically 
inefficient. 

The  bankruptcy  court  would  be  helpless  indeed  if  the  bare  refusal  to 
turn  over  could  conclusively  operate  to  drive  the  trustee  to  an  action 


588  MUELLEE   V.    NUGENT.  [CHAP.  VII. 

to  recover  as  for  an  indebtedness,  or  a  conversion,  or  to  proceedings  in 
chancery,  at  the  risk  of  the  accompaniments  of  delay,  complication, 
and  expense,  intended  to  be  avoided  by  the  simpler  methods  of  the 
bankrupt  law. 

It  is  as  true  of  the  present  law  as  it  was  of  that  of  1867,  that  the 
filing  of  the  petition  is  a.  caveat  to  all  the  world,  and  in  effect  an  attach- 
ment and  injunction.  Bank  v.  Sherman,  101  U.  S.  403;  and  on  adjudi- 
cation, title  to  the  bankrupt's  property  became  vested  in  the  trustee, 
§§  70,  21  e,  with  actual  or  constructive  possession,  and  placed  in  the 
custody  of  the  bankruptcy  court. 

There  was  no  pretence  that  at  the  date  of  the  filing  of  this  petition  in 
bankruptcy  this  money  of  the  bankrupt,  $4,133.45  of  which  had  been 
collected  a  few  days,  and  $10,100,  a  few  hours,  before,  was  held  subject 
to  any  adverse  claim,  or  that  the  right  or  title  thereto  had  been  passed 
over  to  another. 

The  position  now  taken  amounts  to  no  more  than  to  assert  that  a  mere 
refusal  to  surrender  constitutes  an  adverse  holding  in  fact  and  there- 
fore an  adverse  claim  when  the  petition  was  filed,  and  to  that  we  cannot 
give  our  assent. 

But  suppose  that  respondent  had  asserted  that  he  had  the  right  to 
possession  by  reason  of  a  claim  adverse  to  the  bankrupt,  the  bankruptcy 
court  had  the  power  to  ascertain  whether  any  basis  for  such  a  claim 
actually  existed  at  the  time  of  the  filing  of  the  petition.  The  court 
would  have  been  bound  to  enter  upon  that  inquiry,  and  in  doing  so 
would  have  undoubtedly  acted  within  its  jurisdiction,  while  its  con- 
clusion might  have  been  that  an  adverse  claim,  not  merely  colorable, 
but  real  even  though  fraudulent  and  voidable,  existed  in  fact,  and  so 
that  it  must  decline  to  finally  adjudicate  on  the  merits.  If  it  erred  in 
its  ruling  either  wa}',  its  action  would  be  subject  to  review. 

In  this  case,  however,  respondent  asserted  no  right  or  title  to  the 
property  before  the  referee,  and  the  circumstances  under  which  he  held 
possession  must  be  accepted  as  found  by  the  referee  and  the  District 
Court. 

The  decisions  of  this  court  under  the  present  law  sustain  the  validity 
of  the  action  we  are  considering. 

In  Bardes  v.  Hawarden  Bank,  178  U.  S.  524,  the  question  related  to 
the  jurisdiction  of  the  District  Court  over  suits  brought  by  trustees  in 
bankruptcy  to  set  aside  fraudulent  transfers  of  money  or  property  made 
by  the  bankrupt  to  third  parties  before  the  institution  of  proceedings 
in  bankruptcy.  The  court  said  :  "  Had  there  been  no  bankruptcy  pro- 
ceedings, the  bankrupt  might  have  brought  suit  in  any  State  court  of 
competent  jurisdiction  ;  or,  if  there  was  a  sufficient  jurisdictional  amount, 
and  the  requisite  diversity  of  citizenship  existed,  or  the  case  arose  under 
the  Constitution,  laws,  or  treaties  of  the  United  States,  he  could  have 
brought  suit  in  the  Circuit  Court  of  the  United  States.  He  could  not 
have  sued  in  a  District  Court  of  the  United  States,  because  such  a  court 
has  no  jurisdiction  of  suits  at  law  or  in  equity  between  private  parties,  ex- 


CHAP.  VII.]  MUELLER   V.    NUGENT.  589 

cept  where,  by  special  provision  of  an  act  of  Congress,  a  District  Court 
has  the  powers  of  a  Circuit  Court,  or  is  given  jurisdiction  of  a  particular 
class  of  civil  suits."  And  it  was  held  that  Congress,  by  the  second 
clause  of  section  23  of  the  bankruptcy  act,  had  manifested  its  intention 
"that  controversies,  not  strictl}-  or  properly  part  of  the  proceedings  in 
bankruptcy,  but  independent  suits  brought  by  the  trustee  in  bankruptcy 
to  assert  a  title  to  monej"  or  property  as  assets  of  the  bankrupt  against 
strangers  to  those  proceedings,  should  not  come  within  the  jurisdiction 
of  the  District  Courts  of  the  United  States,  '  unless  by  consent  of  the 
proposed  defendant.'  "  The  court  was  dealing  there  with  a  suit  of  the 
trustee  against  a  third  party  to  recover  propertj'  fraudulently  trans- 
ferred to  him  by  the  bankrupt  before  the  filing  of  the  petition  in 
bankruptcy,  and  which  the  third  party  claimed  as  his  own. 

In  White  r.  Schloerb,  178  U.  S.  542,  where,  after  an  adjudication 
in  bankruptcy  and  reference  of  the  case  to  a  referee,  and  before  the 
appointment  of  a  trustee,  the  referee  had  taken  possession  of  the  bank- 
rupt's stock  of  goods  in  a  store,  a  writ  of  replevin  of  part  of  the  goods 
was  sued  out  by  third  persons  against  the  bankrupt  from  a  State  court 
and  executed  by  the  sheriff  forcibly  entering  the  store  and  taking  pos- 
session of  the  goods,  it  was  held  that  the  District  Court  of  the  United 
States,  sitting  in  bankruptcj*,  had  jurisdiction  by  summary  proceedings 
to  compel  the  return  of  the  property  seized. 

In  Bryan  y.  :  Jernheimer,  181  U.  S.  188,  Abraham,  nine  days  before 
the  filing  of  a  petition  in  bankruptcy  against  him,  made  a  general  assign- 
ment to  Davidson  of  all  of  his  property  for  the  benefit  of  his  creditors. 
After  the  filing  of  the  petition  Davidson  sold  the  property  to  Bernheimer. 
After  the  adjudication  in  bankruptcy  and  before  the  appointment  of  a 
trustee,  the  petitioning  creditors  applied  to  the  court  for  an  order  to  the 
marshal  to  take  possession  of  the  property,  alleging  that  this  was  neces- 
sary for  the  interest  of  the  bankrupt's  creditors.  The  court  ordered 
that  the  marshal  take  possession,  and  that  notice  be  given  to  the  pur- 
chaser to  appear  in  ten  days  and  propound  his  claim  to  the  propert}',  or 
failing  to  do  so,  be  decreed  to  have  no  right  in  it.  The  purchaser  came 
in  and  propounded  his  claim,  stating  that  he  bought  the  propert}*  for 
cash  in  good  faith  of  the  assignee,  and  praying  that  the  creditors  be 
remitted  to  their  claim  against  the  assignee  for  the  price,  or  that  the 
price  l>e  ordered  to  be  paid  by  the  assignee  into  court  and  paid  over  to 
the  purchaser,  who  thereupon  offered  to  rescind  the  purchase  and  waive 
all  further  claim  to  the  property.  This  court  held  that  the  summary 
proceeding  was  properly  entertained  ;  that  the  purchaser  had  no  title  in 
the  property  superior  to  the  bankrupt's  estate  ;  and  that  the  equities 
between  him  and  the  creditors  might  be  determined  by  the  District 
Court,  bringing  in  the  assignee  if  necessary.  In  that  case  it  was 
observed  that  the  remark  in  Brinies  r  Bank,  that  the  powers  conferred 
on  the  courts  of  bankruptcy  after  the  filing  of  a  petition  in  bankruptcy, 
and  in  <jase  it  was  necessary  for  the  preservation  of  the  property  of  the 
bankrupt  to  authorize  receivers  or  the  marshals  to  take  charge  of  it 


//^ 


590  MUELLER   V.    NUGENT.  [CHAP.  VII. 

until  a  trustee  was  appointed,  "  '  can  hardly  be  considered  as  authoriz- 
ing the  forcible  seizure  of  such  property  in  the  possession  of  an  adverse 
claimant,'  was  an  inadvertence,  and  upon  a  question  not  arising  in  the 
case  then  before  the  court,  which  related  exclusively  to  jurisdiction  of  a 
suit  by  the  trustee  after  his  appointment."  The  court  also  said: 
"  The  general  assignment,  made~  by  Abraham  to  Davidson,  did  not  con- 
stitute Davidson  an  assignee  for  value,  but  simply  made  him  an  agent  of 
Abraham  for  the  distribution  of  the  proceeds  of  the  property  among 
Abraham's  creditors."  And  further:  "The  present  case  involves  no 
question  of  jurisdiction  over  a  suit  by  a  trustee  against  a  person  claiming 
an  adverse  interest  in  himself." 

In  the  case  before  us,  William  T.  Nugent  held  this  money  as  the 
agent  of  his  father,  the  bankrupt,  and  without  any  claim  of  adverse 
interest  in  himself.  If  it  was  competent  to  deal  with  Davidson,  the 
assignee  in  the  case  of  Bryan  v.  Bernheimer,  by  summary  proceeding, 
William  T.  Nugent  could  be  dealt  with  in  the  same  wa}1. 

rpne  cases  are  indeed  different,  for  Bernheimer,  the  purchaser,  sub- 
mitted himself  to  the  jurisdiction  of  the  bankruptcy  court  and  the  sale 
was  after  petition  filed,  but  nevertheless,  so  far  as  the  question  of  sub- 
jecting  a  mere  volunteer  in  possession  of  assets  belonging  to  the  bank- 
rupt's  estate  to  the  control  of  that  court  b}*  summary  proceedings  is 
concerned,  the  ruling  in  Bernheimer's  case  is  in  point. 

Decree  of  the  Circuit  Court  of  Appeals  reversed  ;  decree  and  order 
of  the  District  Court  affirmed;  and  cause  remanded  to  the  latter 
court  with  liberty  to  take  such  further  proceedings  as  it  may  be 
advised.1 

1  The  statement  of  the  case  has  been  abbreviated  and  a  portion  of  the  opinion 
omitted. 


SECT.  I.J  IN   RE   CLAIBORNE.  591 


CHAPTER    VIII. 
PROTECTION,  EXEMPTIONS,  AND  DISCHARGE  OF  BANKRUPT. 


SECTION     I. 
PROTECTION. 

IN  RE  CLAIBORNE. 

DISTRICT  COURT  FOR  THE  SOUTHERN  DISTRICT  OF  NEW  YORK, 
APRIL  29,  1901. 

[Reported  in  109  Federal  Reporter,  74.] 

BROWN,  District  Judge.  In  an  action  heretofore  brought  by  the 
bankrupt  in  the  New  York  Supreme  Court  against  Adam  E.  Schatz, 
late  city  judge  of  Mt.  Vernon,  Westchester  Count}',  to  recover  damages 
for  alleged  false  imprisonment  upon  a  warrant  of  arrest  theretofore 
issued  by  him  against  the  bankrupt,  a  judgment  dismissing  the  com- 
plaint with  $66.82  costs  was  entered  against  the  bankrupt  on  Decem- 
ber 22,  1900.  Under  the  State  law  the  plaintiff  in  such  an  action,  if 
unsuccessful,  is  liable  to  an  execution  against  the  person  for  the  re- 
covery of  the  costs  of  the  suit ;  and  upon  such  an  execution  issued  on 
March  6,  1901,  the  defendant  was  arrested  and  committed  b\-  the 
sheriff.  Afterwards  and  while  in  custod}-,  the  bankrupt  caused  to  be 
filed  his  voluntary  petition  in  bankruptcy  on  April  20,  1901,  and  on 
that  day  procured  from  this  court  a  writ  of  habeas  corpus  to  inquire 
into  the  cause  of  his  detention.  In  obedience  to  the  writ  the  sheriff 
produced  the  bankrupt  before  the  court,  whereupon  the  foregoing  facts 
appeared. 

It  is  contended  for  the  bankrupt  that  he  is  entitled  to  a  discharge 
from  custody,  for  the  reason  that  the  judgment  for  costs  is  a  provable 
debt  under  section  63  a  (1),  and  would  be  barred  by  a  discharge  in 
bankruptcy  because  not  within  the  exception  of  section  17  a  (2).  I 
am  inclined  to  think  the  latter  claim  to  be  correct,  because  the  present 
debt  is  not  within  the  language  of  section  17  a  (2).  That  clause  ap- 
plies only  to  judgments  "in  actions  for  wilful  and  malicious  injury 
to  the  person  or  property  of  another ;  "  that  is,  of  some  person  other 
than  the  bankrupt,  in  which  the  bankrupt  ma}*  be  adjudged  answerable 
for  damages  for  a  wilful  injury  to  such  other  person.  The  present 


592  IN    RE   CLAIBORNE.  N  [CHAP.  VIII. 

action  was  not  of  that  kind  ;  it  was  brought  by  the  bankrupt  to  recover 
for  a  wilful  injury  to  himself,  and  the  judgment  adjudicated  that  there 
was  no  such  injury.  Although  the  defendant  in  that  action  is  entitled 
under  the  New  York  law  to  an  execution  against  the  person  for  costs, 
that  does  not  enlarge  the  scope  of  the  exception  under  section  17  of 
the  bankrupt  act. 

But  whether  the  above  construction  of  section  17  a  (2)  be  correct 
or  not,  I  do  not  find  any  warrant  in  the  bankruptcy  law,  or  in  the 
general  orders  of  the  Supreme  Court,  for  the  discharge  of  the  bank- 
rupt from  custody.  Section  9  seems  to  provide  only  for  exemption 
from  arrest  upon  process  after  bankruptcy  proceedings  are  com- 
menced; and  section  11  applies  only  to  a  stay  of  suits  pending  or 
the  issue  of  further  process  therein.  General  order  No.  30  of  the 
Supreme  Court  (18  Sup.  Ct.  viii.)  provides  for  cases  where  the  bank- 
rupt is  in  custody  under  an  arrest  made  both  before  and  after  the 
initiation  of  the  bankruptcy  proceedings;  but  it  is  only  in  cases  where 
the  bankrupt  has  been  arrested  or  committed  after  the  filing  of  his 
petition,  that  the  court  is  authorized  to  grant  a  discharge  from  im- 
prisonment, even  though  the  debt  be  provable.  The  language  of 
general  order  No.  30  is  explicit,  that :  — 

"If,  at  the  time  of  preferring  his  petition,  the  debtor  shall  be  im- 
prisoned, the  court,  upon  application,  ma}'  order  him  to  be  produced 
upon  habeas  corpus,  b}"  the  jailer  or  any  officer  in  whose  custody  he 
may  be,  before  the  referee,  for  the  purpose  of  testifying  in  any  matter 
relating  to  his  bankruptcy."  18  Sup.  Ct.  viii. 

I  find  no  further  warrant  anywhere  for  interference  with  the  cus- 
tody of  the  prisoner  when  he  was  imprisoned  under  lawful  process 
before  filing  the  petition.  The  application  in  this  case  not  being 
for  the  purpose  stated  in  general  order  No.  30,  but  for  the  debtor's 
full  discharge  from  custody,  it  must  be  denied,  and  the  writ  dis- 
missed.1 

1  Re  Walker,  1  Low.  222  ;  Hazleton  v.  Valentine,  1  Low.  270 ;  Minon  v.  Van  Nos- 
trand,  1  Low.  458,  Holmes,  251  ;  Brandon  Nat.  Bank  v.  Hatch,  57  N  H.  460 ;  Hussey 
v.  Danforth,  77  Me.  17,  ace.  See  also  Re  Cheney,  5  Fed.  Cas.  No.  2,636 ;  Re  Hoskins, 
Crabbe,  466.  But  see  contra,  People  v.  Erlanger,  132  Fed.  883. 

Arrest  on  criminal  process  is  permissible,  though  the  criminal  proceedings  are  con- 
nected with  proceedings  to  collect  a  debt  and  the  debt  is  barred  by  a  discharge.  Stock- 
well  v.  Silloway,  105  Mass.  517. 


SECT,  l.j  WAGNER   V.   UNITED    STATES.  593 


WAGNER  v.  UNITED   STATES. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  SIXTH  CIRCUIT,, 
OCTOBER  2,   1900. 

[Reported  in  104  Federal  Reporter,  133.] 

BEFORE  LURTON,  DAY,  and  SEVERENS,  Circuit  Judges. 

DAY,  Circuit  Judge,  after  stating  the  facts,  delivered  the  opinion  of 
the  court. 

There  can  be  no  question  that,  under  the  constitution  and  laws  of  the 
United  States,  exclusive  power  is  given  to  the  courts  of  the  United 
States  in  matters  of  bankruptcy.  By  section  11  of  the  "act  of  1898, 
to  establish  a  uniform  system  of  bankruptcy  throughout  the  United 
States,"  it  is  provided  that  a  suit  which  is  founded  upon  a  claim  from 
which  a  discharge  would  be  a  release,  and  which  is  pending  against  a 
person  at  the  time  of  the  filing  of  a  petition  against  him,  shall  be  stayed 
until  after  an  adjudication  or  the  dismissal  of  the  petition.  If  such  person 
is  adjudged  a  bankrupt,  then  such  action  may  be  further  stayed  until 
twelve  months  after  the  date  of  such  adjudication,  or,  if  within  that 
time  such  person  applies  for  a  discharge,  then  until  the  question  of  such 
discharge  is  determined.  From  the  statement  of  this  case  it  appears 
that  Houston,  having  been  adjudicated  a  bankrupt,  filed  an  application 
for  a  restraining  order  against  the  opposing  party  to  restrain  further  pro- 
ceedings for  the  collection  of  alimony  under  the  decree  awarding  alimony 
to  his  wife.  The  District  Court,  acting  upon  the  belief  and  understand- 
ing that  this  claim  was  one  for  which  a  discharge,  when  granted,  would 
be  a  release,  exercised  the  power  conferred  by  the  statute,  and  granted 
the  restraining  order,  which  was  duly  served  before  the  order  punishing 
the  bankrupt  for  contempt  was  made  b}'  the  State  court.  After  the  service 
thereof,  and  acting  with  knowledge  thereof,1  as  appears  in  the  record, 
the  State  court  made  the  order  recited  in  the  statement  of  facts,  com- 
mitting the  bankrupt  to  jail  for  nonpa}'ment  of  the  alimony  theretofore 
decreed.  It  is  said  that  this  was  a  punishment  in  the  State  court  for 
acts  theretofore  committed  in  violation  of  orders  of  the  court,  and  for 
which  the  State  court  had  the  power  and  jurisdiction  to  punish  the  bank- 
rupt notwithstanding  the  proceedings  in  bankruptcy  and  the  restraining 
order  which  had  been  granted  in  the  case.  Upon  examination,  we  are 

1  It  lias  been  held  that  where  a  State  court  has  made  an  arrest,  application  for  re- 
lease must  first  be  made  to  the  State  court.  Re  Migel,  2  B.  II.  481  ;  /feO'Mara,  4  Hiss. 
506.  But  the  decision  of  the  State  court  is  certainly  not  final,  and  in  some  cases  the 
bankruptcy  court  acts  though  no  application  has  been  made  to  the  State  court.  Re 
Wiggers,  2  Biss.  71  ;  Re  Williams,  6  Biss.  233  ;  Re  Glaxer,  2  Ben.  180.  See  also  de- 
cisions under  the  act  of  1841.  Ex  fxirte  Mitflin,  17  Fed.  Cas.  No.  9,537;  United 
States  v.  Dobbins,  25  Fed.  Cas.  No.  14,971  ;  Re  Wiuthrop,  30  Fed.  Cas.  No.  17,900. 


594  WAGNER   V.    UNITED    STATES.  [CHAP.  VIII. 

constrained  to  take  a  different  view  of  this  order.  It  does  not  purport 
to  be  a  punishment  for  a  criminal  contempt,  but  a  committal  of  the 
bankrupt  for  the  nonpayment  of  the  alimony  in  question.  It  is  a  punish- 
ment for  civil  contempt,  the  object  of  the  order  being  to  coerce  payment 
of  the  sums  of  alimony  theretofore  ordered  to  be  paid.  The  restrain- 
ing order  in  the  bankruptcy  court  had  distinctly  directed  that  no  further 
proceedings  be  had  for  the  collection  of  other  sums  of  alimony  pending 
the  bankruptcy  proceedings.  In  other  words,  it  seems  to  us  quite  clear 
that  the  State  court  undertook  to  punish  the  bankrupt  for  nonperform- 
ance  of  the  very  things  which  the  bankrupt  court,  exercising  the  power 
granted  by  law,  had  restrained  the  part}"  in  interest  from  compelling  the 
bankrupt  to  do.  The  question  therefore  presented  is  whether  the  bank- 
rupt, having  been  committed  in  violation  of  the  restraining  order  there- 
tofore made  by  the  bankruptc}r  court,  exercising  its  plenary  power,  can 
be  released  from  imprisonment  under  proceedings  in  habeas  corpus. 
The  question  elaborate!}'  argued,  but  which  we  deem  unnecessaiy  to 
decide,  is  whether  a  decree  for  alimon}^  is  a  provable  debt  under  the 
bankrupt  law.  The  real  issue  to  be  determined  here  is  as  to  the  force 
and  effect  of  the  order  made  within  the  jurisdiction  conferred  b}T  law 
upon  the  bankruptcy  court.  It  seems  to  us  it  is  immaterial  whether 
the  court's  view  of  the  provability  of  the  alimon}-  claim  in  bankruptcy 
is  sound  or  unsound.  Jurisdiction  is  lawfull}r  given  to  the  bankruptcy 
court  to  stay  proceedings  pending  bankruptcy  upon  claims  which  are 
provable.  As  jurisdiction  is  thus  given  to  the  bankruptcy  court  when 
an  application  is  presented  to  it  for  a  restraining  order  under  this  power 
to  determine  whether  the  claim  is  thus  provable,  an  erroneous  decision 
does  not  make  void  the  judgment  of  the  court.  It  is  unnecessary  to 
cite  authorities  to  the  proposition  that  an  order  within  the  jurisdiction  of 
the  court,  until  reversed,  is  binding  and  conclusive  upon  all  parties. 
The  question  is  not  whether  the  discharge,  when  granted,  will  be  a  bar 
to  an  action  for  the  recovery  of  alimony,  but  whether  the  orders  of  the 
court  were  within  its  jurisdiction  under  the  power  granted  by  law.  The 
court,  in  passing  upon  applications  under  this  section  of  the  bankrupt 
law,  is  given  the  right  to  determine  the  question  of  the  provability  of 
debts.  This  is  necessarily  so  in  the  execution  of  the  power  conferred 
by  statute.  This  order,  then,  being  within  the  jurisdiction  of  the  court, 
is  valid  and  binding  upon  all  parties.  There  can  be  no  question  that 
the  imprisonment  and  punishment  of  the  bankrupt  in  violation  of  this 
order  is  such  a  deprivation  of  his  liberty  as  justifies  his  release  upon  an 
order  in  habeas  corpus.  In  the  administration  of  justice  the  courts  of 
the  United  States,  by  all  proper  means,  should  endeavor  to  avoid  con- 
flict of  jurisdiction  with  the  State  courts,  and  a  similar  obligation  rests 
upon  the  latter  in  reference  to  matters  committed  by  law  to  the  juris- 
diction of  the  former.  In  the  enforcement  of  the  powers  conferred  by 
the  constitution  and  laws  in  bankruptcy  matters,  so  long  as  the  Dis- 
trict Court  acts  in  the  matter  within  its  powers,  its  jurisdiction  is  ex- 
clusive and  supreme.  Finding  that  the  bankruptc}'  court  was  acting 


SECT.  I.]  IN    RE    MARCUS.  595 

within  its  jurisdiction  in  issuing  a  restraining  order,  and  that  the  bank- 
rupt was  committed  in  violation  thereof,  we  think  the  conokision  reached 
by  the  District  Court  proper. 

The  order  of  the  court  will  be  affirmed.1 


IN  KE  MARCUS. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  FIRST  CIRCUIT, 
JANUARY  17,  1901. 

[Reported  in  105  Federal  Reporter,  907.] 

BEFORE  COLT  and  PUTNAM,  Circuit  Judges,  and  WEBB,  District 
Judge. 

PUTNAM,  Circuit  Judge.  The  bankrupt  against  whom  this  petition 
was  brought  was  arrested  on  an  execution  which  issued  from  the 
superior  court  for  and  within  the  county  of  Suffolk,  in  the  State  of 
Massachusetts,  on  a  judgment  rendered  after  the  adjudication  in  bank- 
ruptcy. The  judgment  was  for  costs  in  a  suit  brought  by  the  bank- 
rupt against  the  petitioner  before  the  petition  in  bankruptcy  was  filed, 
which  suit  was  disposed  of  in  favor  of  the  petitioner,  and  judgment 
thereon  entered  as  already  said.  At  the  time  of  his  arrest  the  bank- 
rupt held  a  writ  of  protection,  as  follows  :  — 

"  Commonwealth  of  Massachusetts.  In  the  District  Court  of  the 
United  States  for  the  District  of  Massachusetts.  In  the  Matter  of 
Alfred  A.  Marcus  and  Simeon  Marcus,  Bankrupts,  in  Bankruptcy. 

"  To  all  Persons  Interested  in  Said  Estate.  Whereas,  said  bank- 
rupts, on  the  twentieth  day  of  March,  A.  D.  1900,  did  apply  to  me, 
James  M.  Olrnstead,  a  referee  in  bankruptcy  for  and  as  said  District 
Court,  for  a  writ  of  protection,  it  is  hereby  ordered  and  decreed  that 
said  bankrupts  be,  and  are  hereby,  protected  and  exempt  from  arrest 
in  all  civil  actions  brought  against  them,  save  in  those  which  are 
exempted  by  section  9  of  the  bankruptc}'  act.  This  order  to  continue 
until  the  final  adjudication  on  their  application  for  their  discharge, 
unless  suspended  or  vacated  1)3-  order  of  this  court ;  and  it  is  further 
ordered  or  decreed  that  all  persons  are  prohibited  from  arresting  the 
said  Alfred  A.  Marcus  and  Simeon  Marcus,  save  as  aforesaid,  until 
adjudication  on  their  application  for  a  discharge. 

1  Where  a  State  court  has  made  a  decision  of  a  question  of  fact  (e.  </.  whether  a  debt 
was  created  by  fraud)  upon  which  a  right  to  arrest  depends,  it  has  generally  been  held 
that  the  bankruptcy  court  will  regard  this  decision  as  final,  though  based  merely  on 
affidavits.  Re  Devoe,  1  Low.  251  ;  Re  Kimball,  2  Ren.  554;  6  Match.  292;  AV  V.-ilk, 
3  Ben.  431  ;  Re  Robinson,  6  Blatch.  253.  But  see  nnitrn,  He  Kimball,  2  Ben.  138 ;  Re 
Glaser,  2  Ben.  180;  Re  Williams,  6  Biss.  233  ;  AV  Alsberg,  16  B.  R.  116.  In  lie  Kim- 
ball,  2  Ben.  554  (affirmed  in  fi  Blatch.  2!tl>).  howovi-r.  Judge  Blatchford  overruled  hia 
own  decisions  in  AV  Kimball,  2  Ben.  138,  and  /.'»•  (ilaner,  2  Ben.  180. 


596  IN   RE   MARCUS.  [CHAP.  VIII. 

"  Witness  my  hand  at  Boston,  in  said  district,  this  seventeenth  day 
of  May,  A.  D.  1900.  JAMES  M.  OLMSTEAD." 

The  bankrupt  applied  to  the  District  Court,  sitting  in  bankruptc}T,  to 
be  discharged  from  the  arrest,  and  a  discharge  was  ordered,  and  this 
petition  was  brought  to  revise  that  adjudication.  The  record  shows 
that,  in  ordering  the  discharge,-  the  court  relied  on  the  writ  of  protec- 
tion, though  apparently  its  specific  terms  were  not  brought  to  its 
attention,  and  that  it  did  not  rely' on  the  provision  in  the  bankrupt  act 
of  July  1,  1898  (section  9  a),  which  exempts  a  bankrupt  from  arrest 
when  in  attendance  upon  a  court  of  bankruptcy,  or  when  engaged  in 
the  performance  of  a  duty  imposed  by  the  act,  nor  on  the  broad  powers 
asserted  for  courts  of  bankruptcy  by  the  Circuit  Court  of  Appeals  for 
the  Sixth  Circuit  in  Wagner  v.  IL  S.  (C.  C.  A.),  104  Fed.  133. 

The  bankrupt  was  adjudicated  such  on  his  own  petition,  filed  before 
the  judgment  for  costs  was  rendered,  as  already  said.  Therefore  the 
costs  were  not  provable  against  his  estate,  and  consequently  they  were 
within  the  letter  of  the  express  exceptions  in  section  9  «,  so  far  as  they 
relate  to  arrests  on  civil  process  when  issued  upon  a  debt  or  claim 
from  which  a  discharge  in  bankruptc}*  is  not  a  release.  Section  63  a 
directs  specifically  what  taxable  costs  are  provable,  and  its  provisions 
with  reference  thereto  must  be  held  to  cover  that  entire  subject-matter, 
and  to  exclude  such  costs  from  being  considered  in  connection  with 
those  parts  of  the  act  which  relate  to  provable  "  unliquidated  claims." 
In  this  particular  we  agree  with  the  conclusions  of  Judge  Lowell,  sit- 
ting in  the  District  Court  for  the  District  of  Massachusetts,  reported  in 
He  Marcus  (D.  C.),  104  Fed.  331.  We  also  agree  with  the  conclu- 
sions there  expressed,  that,  ordinarity,  a  bankrupt  re  not  entitled  to  be 
protected  from  arrest  on  an  execution  of  the  character  of  that  now 
before  us.  We  also  concur  in  the  construction  and  effect  there  given 
to  the  writ  of  protection  in  that  case,  which  we  are  advised  was  the 
same  in  form  as  the  writ  of  protection  in  the  case  at  bar,  in  that  it 
relates  only  to  actions  on  claims  or  debts  which  are  provable. 

We  are  not  called  upon  to  determine  what  should  be  our  action  if 
the  court  below  had  undertaken  to  proceed  on  the  broad  principles 
asserted  in  Wagner  v.  U.  S.,  or  had  held  that  the  bankrupt  should  be 
discharged  from  arrest  because  he  was  in  attendance  on  the  court,  or 
engaged  in  the  performance  of  some  duty  imposed  on  him.  Under  the 
circumstances,  the  arrest  cannot  be  regarded  as  illegal,  the  bankrupt 
should  not  have  been  discharged  therefrom,  and  this  petition  is  well 
grounded. 

Let  there  be  a  decree  for  the  petitioner,  with  costs  against  the  re- 
spondents.1 

1  Similarly  no  relief  can  be  had  against  arrest  in  an  action  to  collect  a  debt  created 
by  fraud  or  by  misappropriation  of  the  debtor  while  acting  in  a  fiduciary  capacity  ;  since 
such  debts  though  provable  are  not  barred  by  a  discharge.  Re  Devoe,  1  Low.  251  ;  Re 
Seymour,  1  Ben.  348 ;  Re  Kimball,  2  Ben.  38  ;  ~Re  Patterson,  2  Ben.  155 ;  Re  Glaser,  2  Ben. 
180  ;  Re  Pettis,  2  B.  R.  44  ;  Barter  v.  Harlan,  2  B.  R.  236  ;  Re  Alsberg,  16  B.  R.  116. 


SECT.  II.]  IN  KE   HATCH.  597 


SECTION    IL 

EXEMPTIONS. 

IN  RE  HATCH. 

DISTRICT  COURT  FOR  THE  SOUTHERN  DISTRICT  OF  IOWA, 
JUNE  19,  1900. 

[Reported  in  102  Federal  Reporter,  280.] 

SHIRAS,  District  Judge.  From  the  facts  certified  by  the  referee  in 
this  case,  it  appears  that  on  the  1st  day  of  March,  1899,  the  bankrupt, 
James  H.  Hatch,  executed  and  delivered  to  E.  D.  Mahon  a  chattel 
mortgage  upon  certain  personal  property,  including  one  bay  mare  and  a 
lumber  wagon,  to  secure  the  payment  of  a  debt  of  $125  ;  that  this  mort- 
gage was  not  filed  for  record  or  recorded  as  required  by  the  provisions 
of  the  Code  of  Iowa ;  that  on  the  30th  day  of  March,  1900,  James  H. 
Hatch  was  duly  adjudged  a  bankrupt  upon  his  own  petition,  and  a 
trustee  of  his  estate  was  appointed  and  qualified  ;  that  upon  the  appli- 
cation of  the  bankrupt  the  property  exempt  to  him  was  set  apart,  there 
being  included  therein  the  bay  mare  and  lumber  wagon  covered  by  the 
mortgage  to  E.  D.  Mahon  ;  that  the  said  E.  D.  Mahon  filed  her  claim, 
based  upon  the  note  held  by  her  and  the  chattel  mortgage,  and  asked 
that  the  same  be  allowed  as  a  preferred  claim  against  the  property  in- 
cluded in  the  mortgage  ;  that  upon  a  hearing  had  before  the  referee  it 
was  ordered  kb  that  said  claim  be  denied  as  a  secured  or  preferred  claim, 
but  the  same  shall  stand  as  a  common  claim,  and  be,  and  the  same  is, 
allowed  as  such  for  $72.75,"  —  the  referee  holding  that  the  failure  to 
record  the  mortgage  rendered  it  invalid,  under  section  67  a  of  the  bank- 
rupt act.  It  further  appears  that  on  the  26th  da}'  of  May,  1900,  E.  D. 
Mahon  filed  a  petition  before  the  referee,  asking  that  an  order  be  made 
requiring  the  bankrupt  to  turn  over  and  deliver  to  the  trustee  the  bay 
mare  and  wagon  set  apart  as  exempt  property,  in  order  that  the  trustee 
might  sell  the  same,  and  apply  the  proceeds  to  the  payment  of  the 
claim  due  the  petitioner.  Upon  the  hearing  on  this  petition  the  referee 
entered  an  order  to  the  effect  "  that  on  demand  the  bankrupt,  James 
II.  Hatch,  shall  surrender  and  deliver  to  Edgar  Daggctt,  trustee  herein, 
the  said  mare,  Nell,  and  the  said  lumber  wagon  ;  the  said  trustee  to 
sell  the  same  at  public  auction,  first  posting  ten  days'  notice  of  the 
time  and  place  of  said  sale,  or  at  private  sale,  for  not  less  than  seventy- 
five  per  cent  of  the  appraisal ;  the  proceeds,  less  expense  of  taking, 
keeping,  and  selling,  or  so  much  thereof  as  may  be  necessarj-,  to  be 
paid  to  the  said  E.  D.  Mahon."  To  this  order  the  bankrupt  excepted, 
and  now  presents  the  question  of  the  validity  of  the  order  to  this  court 
for  determination 


598  LOCKWOOD  V.  EXCHANGE  BANK.  [CHAP.  VIII. 

By  the  provisions  of  section  70  of  the  bankrupt  act  it  is  declared  that 
there  shall  be  vested  in  the  trustee  the  title  of  the  bankrupt  as  it  existed 
at  the  date  of  the  adjudication,  to  the  various  kinds  of  property  enu- 
merated in  the  section,  "  except  in  so  far  as  it  is  to  property  which  is 
exempt."  As  the  bay  mare  and  the  lumber  wagon  in  controversy  were 
set  apart  to  the  bankrupt  as  property  exempt  under  the  provisions  of 
the  Code  of  Iowa,  it  follows  that  the  trustee  is  not  vested  with  the  title 
to  this  property,  nor  has  he  an}-  equity  therein  as  the  representative  of 
the  general  creditors.  The  trustee  cannot  assert  any  right  to  the  prop- 
ert}',  nor  show  any  ground  for  asking  an  order  for  a  sale  thereof. 
The  actual  possesion  of  the  property  is  held  by  the  bankrupt,  and  since 
the  same  was  segregated  from  the  estate,  and  assigned  to  the  bankrupt 
as  exempt,  it  has  ceased  to  be  within  either  the  actual  or  constructive 
possession  of  the  court  of  bankruptcy.  The  situation  is  not  one,  there- 
fore, which  enables  the  creditor  to  invoke  the  jurisdiction  of  the  court 
on  the  ground  that,  as  the  propert}'  is  in  the  possession  of  the  court,  it 
can  take  jurisdiction  over  claims  sought  to  be  enforced  against  the  prop- 
erty. The  order  excepted  to  is  therefore  reversed,  and  the  referee  is 
directed  to  enter  an  order  dismissing  the  petition,  for  the  reason 
stated.1 


LOCKWOOD  v.  EXCHANGE   BANK 
SUPREME  COURT  OF  THE  UNITED  STATES,  APRIL  7-JuNE  1,   1903 

[Reported  in  190  United  States,  294.] 

MR.  JUSTICE  WHITE  delivered  the  opinion  of  the  court. 

The  general  exemption  of  property  from  levy  or  sale,  authorized 
by  article  9,  sec.  1,  par.  1,  of  the  present  constitution  of  the  State  of 
Georgia  (that  of  1877),  is  "realty  or  personalty,  or  both,  to  the  value 
in  the  aggregate  of  sixteen  hundred  dollars."  By  article  9,  sec.  3, 
par.  1,  of  the  same  constitution  a  debtor  is  vested  with  power  to 
waive  or  renounce  in  writing  this  right  of  exemption,  "  except  as 
to  wearing  apparel,  and  not  exceeding  three  hundred  dollars'  worth 
of  household  and  kitchen  furniture,  and  provisions."  The  mode  of 
enforcement  of  a  waiver  of  exemption  is  provided  for  in  section  2850 
of  the  Code  of  1895,  reading  as  follows  : 

1  The  opinion  is  slightly  abbreviated. 

Re  Bass,  3  Woods,  382 ;  Rix  v.  Capitol  Bank,  2  Dill.  367 ;  Re  Camp,  91  Fed.  Rep. 
745;  Re  Hill,  96  Fed.  Rep.  185 ;  Re  Grimes,  96  Fed.  Rep.  529;  Woodruff  v.  Cheeves, 
105  Fed.  Rep.  601  (C.  C.  A.) ;  Re  Little,  110  Fed.  Rep.  621,  ace.  See  also  Re  Poleman, 
5  Biss.  526;  Re  Stevens,  5  B.  R.  298 ;  Re  Preston,  6  B.  R.  545;  Byrd  v.  Harrold,  18 
B.  R.  433. 

Re  Garden,  93  Fed.  Rep.  423;  Re  Woodruff,  96  Fed.  Rep.  317  (reversed  105  Fed 
Rep.  601 ) ;  Re  Sisler,  96  Fed.  Rep.  402,  contra. 


SECT.  II.]  LOCKWOOD   V.   EXCHANGE   BANK.  599 

"  In  all  cases  when  any  defendant  in  execution  has  applied  for,  and 
had  set  apart  a  homestead  of  realt}-  and  personalty,  or  either,  or  where 
the  same  has  been  applied  for  and  set  apart  out  of  his  property,  as  pro- 
vided for  by  the  constitution  and  laws  of  this  State,  and  the  plaintiff  in 
execution  is  seeking  to  proceed  with  the  same,  and  there  is  no  prop- 
erty except  the  homestead  on  which  to  levy,  upon  the  ground  that  his 
debt  falls  within  some  one  of  the  classes  for  which  the  homestead  is 
bound  under  the  constitution,  it  shall  and  may  be  lawful  for  such  plain- 
tiff, his  agent  or  attorney,  to  make  affidavit  before  any  officer  authorized 
to  administer  oaths,  that,  to  the  best  of  his  knowledge  and  belief,  the 
debt  upon  which  such  execution  is  founded  is  one  from  which  the 
homestead  is  not  exempt,  and  it  shall  be  the  duty  of  the  officer  in 
whose  hands  the  execution  and  affidavit  are  placed  to  proceed  at  once 
to  levy  and  sell,  as  though  the  property  had  never  been  set  apart.  The 
defendant  in  such  execution  may,  if  he  desires  to  do  so,  den}*  the  truth 
of  the  plaintiff's  affidavit,  by  filing  with  the  levying  officer  a  counter 
affidavit." 

The  question  presented  on  the  record  before  us  may  be  stated  in 
similar  language  to  that  which  was  used  by  the  district  judge  —  the 
correctness  of  whose  decision  in  the  case  at  bar  is  now  for  review  — 
in  the  course  of  his  opinion  in  In  re  Woodruff,  96  Fed.  Rep.  317,  as  fol- 
lows (p.  318)  : 

"  Has  the  bankruptcy  court  jurisdiction  to  protect  or  enforce  against 
the  bankrupt's  exemption  the  rights  of  creditors  not  having  a  judgment 
or  other  lien,  whose  promissory  notes  or  other  like  obligations  to  pay     , 
contain  a  written  waiver  of  the  homestead  and  exemption  authorized 
and  prescribed  by  the  constitution  of  the  State,  or  are  such  creditors  ^j^^^  ( 

to  be  remitted  to  the  State  courts  for   such  relief  as  ma\r  be  there    , 

,.,.,„  J  K.t«  ***&. 

obtained  ?  t^ytJL^f 

Tin:  provisions  of  the  bankruptcy  act  of  1898,  which  control  the  con- 
sideration of  the  question  just  propounded,  are  as  follows  :  By  clause 
11  of  section  2  courts  of  bankruptcy  are  vested  with  jurisdiction  "to 
determine  all  claims  of  bankrupts  to  their  exemptions."  Section  6 
provides  as  follows: 

"  SEC.  6.  This  act  shall  not  affect  the  allowance  to  bankrupts  of  the 
exemptions  which  are  prescribed  by  the  State  laws  in  force  at  the  time 
of  the  filing  of  the  petition  in  the  State  wherein  they  have  had  their 
domicile  for  the  six  months  or  the  greater  portion  thereof  immediately 
preceding  the  filing  of  the  petition." 

By  clause  8  of  section  7  the  bankrupt  is  required  to  schedule  all  his 
property  and  to  make  "  a  claim  for  such  exemptions  as  he  may  be 
entitled  to."  By  clause  1 1  of  section  47  it  is  made  the  duty  of  the 
trustees  to  "  set  apart  the  bankrupt's  exemptions  and  report  the  items 
and  estimated  value  thereof  to  the  court  as  soon  as  practicable  after 
their  appointment."  By  section  67  it  is  provided,  among  other  things, 
that  the  property  of  the  debtor  fraudulently  conveyed,  etc.,  "  shall,  if  he 
be  adjudged  a  bankrupt,  and  the  same  is  not  exempt  from  execution 


600  LOCKWOOD   V.   EXCHANGE   BANK.  [CHAP.  VIII. 

and  liability  for  debts  by  the  law  of  his  domicile,  be  and  remain  a  part 
of  the  assets  and  estate  of  the  bankrupt,"  etc.  In  section  70  is  enu- 
merated the  property  of  the  bankrupt  which  is  to  vest  in  the  trustee, 
as  of  the  date  of  the  adjudication  in  bankruptcy,  "  except  in  so  far  as 
it  is  to  property  which  is  exempt" 

Under  the  bankruptcy  act  of  1867  it  was  held  that  property  generally 
exempted  by  the  State  law  from  the  claims  of  creditors  was  not  part  of 
the  assets  of  the  bankrupt  and  did  not  pass  to  the  assignee,  but  that 
such  property  must  be  pursued  by  those  having  special  claims  against 
it  in  the  proper  State  tribunals.  Thus,  speaking  of  the  act  of  1867, 
Mr.  Justice  Bradley  (In  re  Bass,  3  Woods,  382,  384)  said : 

"  Not  only  is  all  property  exempted  b}'  State  laws,  as  those  laws 
stood  in  1871,  expressly  excepted  from  the  operation  of  the  convey- 
ance to  the  assignee,  but  it  is  added  in  the  section  referred  to,  as  if  ex 
industria,  that  '  these  exceptions  shall  operate  as  a  limitation  upon 
the  conveyance  of  the  property  of  the  bankrupt  to  his  assignee,  and 
in  no  case  shall  the  property  hereby  excepted  pass  to  the  assignee 
or  the  title  of  the  bankrupt  thereto  be  impaired  or  affected  by  any 
of  the  provisions  of  this  title.' 

"In  other  words,  it  is  made  as  clear  as  anything  can  be,  that  such 
exempted  property  constitutes  no  part  of  the  assets  in  bankruptcy. 
The_agreement  of  the  bankrupt  in  any  particular  case  to  waive  the 
right  to  the  exemption  makes  no  difference.  He  may  owe  other  debts 
in  regard  to  which  no  such  agreement  has  been  made.  But  whether  so 
or  not,  it  is  not  for  the  bankrupt  court  to  inquire.  The  exemption  is 
created  by  the  State  law,  and  the  assignee  acquires  no  title  to  the 
exempt  property.  If  the  creditor  has  a  claim  against  it  he  must 
prosecute  that  claim  in  a  court  which  has  jurisdiction  over  the 
property,  which  the  bankrupt  court  has  not." 

"We  think  that  the  terms  of  the  bankruptcy  act  of  1898,  above  set 
out,  as  clearly  evidence  the  intention  of  Congress  that  the  title  to  the 
property  of  a  bankrupt  generally  exempted  by  State  laws  should  re- 
main in  the  bankrupt  and  not  pass  to  his  representative  in  bankruptcy, 
as  did  the  provisions  of  the  act  of  1867,  considered  in  In  re  Bass.  The 
fact  that  the  act  of  1898  confers  upon  the  court  of  bankruptc}"  authority 
to  control  exempt  property  in  order  to  set  it  aside,  and  thus  exclude  it 
from  the  assets  of  the  bankrupt  estate  to  be  administered,  affords  no 
just  ground  for  holding  that  the  court  of  bankruptcy  must  administer 
and  distribute,  as  included  in  the  assets  of  the  estate,  the  very  property 
which  the  act  in  unambiguous  language  declares  shall  not  pass  from  the 
bankrupt  or  become  part  of  the  bankruptcy  assets.  The  two  provisions 
of  the  statute  must  be  construed  together  and  both  be  given  effect. 
Moreover,  the  want  of  power  in  the  court  of  bankruptcy  to  admin- 
ister exempt  property  is  besides  shown  by  the  context  of  the  act,  since 
throughout  its  text  exempt  property  is  contrasted  with  property  not 
exempt,  the  latter  alone  constituting  assets  of  the  bankrupt  estate  sub- 
ject to  administration.  The  act  of  1898,  instead  of  manifesting  the 


SECT.  II.]  LOCKWOOD   V.   EXCHANGE   BANK.  601 

purpose  of  Congress  to  adopt  a  different  rule  from  that  which  was 
applied,  as  we  have  seen  with  reference  to  the  act  of  1867,  on  the 
contrary  exhibits  the  intention  to  perpetuate  the  rule,  since  the  pro- 
vision of  the  statute  to  which  we  have  referred  in  reason  is  consonant 
only  with  that  hypothesis. 

Though  it  be  conceded  that  some  inconvenience  ma}1  arise  from  the 
construction  which  the  text  of  the  statute  requires,  the  fact  of  such 
inconvenience  would  not  justify  us  in  disregarding  both  its  letter  and 
spirit.  Besides,  if  mere  arguments  of  inconvenience  were  to  have 
weight,  the  fact  cannot  be  overlooked  that  the  contrary  construction 
would  produce  a  greater  inconvenience.  The  difference,  however, 
between  the  two  is  this,  that  in  the  latter  case  —  that  is,  causing 
the  exempt  property  to  form  a  part  of  the  bankruptcy  assets  —  the 
inconvenience  would  be  irremediable,  since  it  would  compel  the  ad- 
ministration of  the  exempt  property  as  part  of  the  estate  in  bank- 
ruptcy, whilst  in  the  other,  the  rights  of  creditors  having  no  lien,  as  in 
the  case  at  bar,  but  having  a  remedy  under  the  State  law  against  the 
exempt  property,  may  be  protected  by  the  court  of  bankruptcy,  since, 
certainly,  there  would  exist  in  favor  of  a  creditor  holding  a  waiver  note, 
like  that  possessed  by  the  petitioning  creditor  in  the  case  at  bar,  an 
equit}-  entitling  him  to  a  reasonable  postponement  of  the  discharge  of 
the  bankrupt,  in  order  to  allow  the  institution  in  the  State  court  of 
such  proceedings  as  might  be  necessary  to  make  effective  the  rights 
possessed  by  the  creditor. 

As  in  the  case  at  bar,  the  entire  property  which  the  bankrupt  owned 
is  within  the  exemption  of  the  State  law,  it  becomes  unnecessary  to 
consider  what,  if  any,  remedy  might  be  available  in  the  court  of  bank- 
ruptcy for  the  benefit  of  general  creditors,  in  order  to  prevent  the  cred- 
itor holding  the  waiver  as  to  exempt  property  from  taking  a  dividend 
on  his  whole  claim  from  the  general  assets,  and  thereafter  availing 
himself  of  the  right  resulting  from  the  waiver  to  proceed  against 
exempt  property. 

The  judgment  of  the  District  Court  is  reversed,  and  the  proceeding 
is  remanded  to  that  court  with  directions  to  overrule  the  excep- 
tions to  the  trustee's  assignment  of  homestead  and  exemption,  and 
to  withhold  the  discharge  of  the  bankrupt,  if  he  be  othenvise 
entitled  thereto,  until  a  reasonable  time  has  elapsed  for  the  ex- 
cepting creditor  to  assert  in  a  /State  tribunal  his  alleged  right  to 
subject  the  exempt  property  to  the  satisfaction  of  his  claim. 


602  KE   MUSSEY.  [CHAP1.  VIII. 

SECTION    III. 

DISCHARGE. 
RE  MUSSEY. 

DISTRICT  COURT  FOR  THE  DISTRICT  OP  MASSACHUSETTS, 
JANUARY  15,  1900. 

[Reported  in  99  Federal  Reporter,  71.] 

LOWELL,  District  Judge.  This  was  a  voluntary  petition  filed  July 
3,  1899.  On  October  27,  1897,  the  bankrupt  had  filed  a  voluntary 
petition  in  insolvency,  upon  which  proceedings  are  now  pending.  She 
has  now  applied  for  her  discharge  in  bankruptcy,  and  certain  creditors 
who  proved  their  claims  in  the  insolvency  proceedings  ask  that  the  dis- 
charge granted  her  shall  expressly  exempt  from  its  operation  all  claims 
proved  in  insolvenc}',  or  within  the  jurisdiction  of  the  insolvency  court, 
and  also  such  claims  as  were  created  by  her  fraud.  It  was  held  in  Re 
Rhutassel  (D.  C.)  96  Fed.  597,  that  the  only  issue  tendered  03-  the 
petition  for  a  discharge  is  the  right  to  the  discharge,  and  that  the  only 
facts  properly  pleadable  in  opposition  thereto  are  those  which  show 
that  the  bankrupt  is  entitled  to  no  discharge  whatsoever.  "  The  issue 
upon  the  effect  of  a  discharge  will  arise  when  a  creditor  seeks  to  en- 
force a  judgment  or  claim,  and  the  debtor  pleads  his  discharge  in  bar 
thereof."  See  also  In  re  Thomas  (D.  C.)  92  Fed.  912.  The  dis- 
cretion of  this  court  cannot  determine  the  effect  of  a  discharge  in 
bankruptcy  upon  debts  proved  in  insolvency.  These  debts  are  either 
barred  b\"  the  discharge  as  matter  of  law,  or  else,  as  matter  of  law, 
remain  unaffected  thereby.  The  question  of  law  is  raised  upon  the 
creditors'  suit  to  enforce  these  debts  more  conveniently  than  upon  the 
petition  for  discharge,  and  so  it  is  more  convenient  that  the  discharge 
shall  be  in  the  usual  form,  and  that  its  scope  shall  be  left  for  future 
determination.  The  same  considerations  apply  to  debts  created  by  the 
bankrupt's  fraud.  Alleged  fraud  raises  an  issue  of  fact,  which  will  be 
determined  upon  the  creditors'  suit  to  enforce  the  debt  alleged  to  be 
created  by  fraud  more  conveniently  than  upon  the  bankrupt's  applica- 
tion for  his  discharge.  The  discharge  will  therefore  be  granted  in  the 
usual  form.1 

i  Re.  Rathbone,  2  Ben.  138;  Re  Rosenfield,  1  B.  R.  575;  Re  Wright,  2  B.  R.  41  ; 
Re  Clarke,  2  B.  R.  110;  Re  Elliott,  2  B.  R.  1 10;  Re  Stokes,  2  B.  R.  212 ;  Re  Tracy, 
2  B.  R.  298;  Re  Thomas,  92  Fed.  Rep.  912;  Re  Rhutassel,  96  Fed.  Rep.  597;  Re 
Marshall  Paper  Co.,  102  Fed.  Rep.  872  (C.  C.  A.) ;  Re  McCarty,  111  Fed.  Rep.  151,  ace. 
See  also  Chapman  v.  Forsyth,  2  How.  202. 

In  Re  Tinker,  99  Fed.  Rep.  79,  this  doctrine  was  applied  though  there  was  but  one 
debt  on  the  bankrupt's  schedule  and  that  would  not  be  barred.  Con/1  Re  Maples,  105 
Fed.  Rep.  919. 


SECT.  III.]  WAY   V.   HOWE.  603 

WAY  v.   HOWE. 

SUPREME  JUDICIAL  COURT  OF  MASSACHUSETTS,  NOVEMBER,  1871. 
[Reported  in  108  Massachusetts,  503.] 

GRAY,  J.  This  case  presents  the  question  whether  a  certificate  of 
discharge,  granted  by  the  District  Court  of  the  United  States  under  the 
bankrupt  act  of  1867,  c.  176,  can  be  impeached  in  a  State  court  (in  an 
action  brought  upon  a  debt  which  was  provable  against  the  estate  in 
bankruptcy  and  which  was  of  a  nature  to  be  barred  by  a  valid  discharge) 
on  account  of  a  fraudulent  conveyance  of  property  by  the  bankrupt. 

It  is  not  doubted  that  Congress,  under  the  power  to  establish  a 
uniform  system  of  bankruptcy,  may  prescribe  the  conditions  upon  which 
a  certificate  of  discharge  shall  be  granted,  and  the  extent  and  degree 
of  its  effect ;  and  that  the  question  before  us  is  therefore  to  be  deter- 
mined by  the  provisions  of  the  statute.  Payson  v.  Payson,  1  Mass. 
283.  Burnside  v.  Brigham,  8  Met.  75.  Those  provisions,  so  far  as 
the}-  are  material  to  the  question  at  issue,  are  as  follows  :  — 

[The  court  here  stated  the  substance  of  sections  1,  21,  29,  31,  32, 
33,  34.] 

The  words  "with  the  exceptions  aforesaid"  in  section  34,  like  the 
words  "  except  as  hereinafter  provided"  in  section  32,  clearly  refer  to 
those  debts  which  by  the  intermediate  section  are  declared  not  to  be 
barred  by  any  discharge  under  the  act. 

•  With  this  reservation,  section  34  explicitly  declares  that  "a  discharge 
duly  granted  under  this  act"  (that  is  to  say,  by  the  court  and  in  the 
manner  already  pointed  out)  "shall  release  the  bankrupt  from  all  debts, 
claims,  liabilities,  and  demands  which  were  or  might  have  been  proved 
against  his  estate  in  bankruptcy,"  and  "  may  be  pleaded  as  a  full  and 
complete  discharge  to  all  suits  brought  thereon,"  as  well  as  that  "the 
certificate  shall  be  conclusive  evidence  in  favbr  of  such  bankrupt  of  the 
fact  and  regularity  of  such  discharge." 

The  only  restriction  upon  these  sweeping  and  comprehensive  words 
is  to  be  found  in  the  ensuing  proviso  in  the  same  section,  which  allows 
any  creditor,  whose  debt  was  either  proved  or  provable  against  the 
estate  in  bankruptcy,  to  apply  to  the  court  of  bankruptcy  within  two 
years  afterwards,  and  upon  alleging  and  proving  either  of  the  causes 
mentioned  in  section  29,  and  also  proving  his  ignorance  thereof  until 
after  the  granting  of  the  discharge,  to  obtain  a  judgment  setting  aside 
and  annulling  it.  If  he  fails  to  prove  cither  such  fraudulent  act  of 
the  bankrupt,  or  such  ignorance  on  his  own  part,  judgment  is  to  be 
rendered  in  favor  of  the  bankrupt,  and  the  validity  of  the  discharge  is 
not  affected. 

The  decisions  under  the  insolvent  laws  of  this  Commonwealth,  or 
the  earlier  bankrupt  acts  of  the  United  States,  are  inapplicable  to  this 
case ;  because  the  former  contained  no  provision  for  entirely  setting 


604  WAY  v.  HOWE.  [CHAP.  vin. 

aside  or  annulling  a  discharge  once  granted,  and  therefore  its  invalidity 
for  an)*  of  the  causes  specified  in  them  could  only  be  alleged  and  proved 
whenever  the  discharge  was  pleaded  in  any  action  on  a  debt ;  and  in 
the  latter  the  right  to  impeach  the  discharge  in  any  such  action  was 
expressly  reserved.  St.  1838,  c.  163,  §  10;  Gen.  Sts.  c.  118,  §§  87, 
88 :  U.  S.  Sts.  1800,  c.  19,  §  34 ;  1841,  c.  9,  §  4. 

The  intention  of  Congress,  in  the  bankrupt  act  of  1867,  in  omitting 
any  such  reservation  in  sections  29  and  34,  and  in  giving  a  new  proceed- 
ing by  which  an)-  creditor,  whose  debt  was  proved  or  provable,  may, 
upon  proving  a  fraudulent  act  of  the  bankrupt,  have  the  discharge  set 
aside  and  annulled,  if  that  act  was  unknown  to  him  before  the  discharge 
was  granted,  but  not  otherwise,  appears  to  us  to  have  been,  that  the 
question  of  the  discharge  of  the  bankrupt  from  all  debts  and  claims 
whatever  (except  of  those  classes  which  are  declared  not  to  be  affected 
by  any  certificate  of  discharge)  should  be  finally  and  conclusively  settled 
by  the  court  of  bankruptcy  within  a  moderate  time,  leaving  the  bank- 
rupt, if  he  prevails  on  such  trial  of  that  issue,  free  from  future  suit, 
molestation,  or  embarrassment  on  account  thereof;  and  that  every 
creditor  should  be  obliged  to  try  the  question  of  the  validity  of  the 
discharge,  if  at  all,  while  the  facts  upon  which  it  depends  are  compara- 
tively recent,  and  in  such  a  manner  as  to  enure  to  the  benefit  of  all  the 
creditors  if  the  discharge  is  annulled,  and  should  not  be  allowed  to  wait 
until  the  period  prescribed  by  the  general  statutes  of  limitations  has 
nearly  expired,  and  the  bankrupt  has  perhaps  established  himself  anew 
in  business  and  suffered  the  means  of  disproving  the  charges  against 
him  to  pass  beyond  his  reach,  and  then  bring  a  suit  to  which  the  other 
creditors  are  not  parties,  and  thus  harass  him  on  account  of  his  old 
debts,  and  obtain  an  inequitable  advantage  over  them.  It  follows,  that 
the  remedy  given  by  application  to  a  district  court  of  the  United  States 
under  section  34  of  the  bankrupt  act  is  exclusive  of  any  other  mode 
of  impeaching  the  validity  of  a  discharge,  either  in  the  federal  or  in 
the  State  courts,  on  account  of  a  fraudulent  conveyance  by  the  bankrupt 
in  violation  of  the  bankrupt  act.  Simms  v.  Slacum,  3  Cranch,  300,  308  ; 
Crocker  v.  Marine  National  Bank,  101  Mass.  240,  and  authorities  cited. 

This  conclusion  is  supported  by  an  able  judgment  of  the  Supreme 
Court  of  Maine  in  Corey  v.  Ripley,  57  Maine,  69,  and  by  a  decision  of 
the  Court  of  Appeals  of  New  York  in  Ocean  National  Bank  v.  Olcott, 
46  N.  Y.  12.  See  also  Lynn  v.  Hamilton,  5  Vroom,  305.  The  opposing 
decision  in  Beardsley  v.  Hall,  36  Conn.  270,  appears  to  have  been 
made  without  a  thorough  examination  of  the  provisions  of  the  act  of 
Congress. 

We  are  therefore  of  opinion  that  it  was  rightly  ruled  by  the  Superior 
Court  that  the  defendant's  discharge  in  bankruptcy  could  not  be 
impeached  or  invalidated  in  this  action  for  the  cause  stated  in  the 
replication.  Exceptions  overruled.1 

1  Commercial  Bank  v.  Bnckner,  20  How.  108;  Gates  v.  Parish,  47  Ala.  157 ;  Mil- 
hous  v.  Aicardi,  51  Ala.  594;  Payne  v.  Able,  7  Bash.  344;  Thurmond  v.  Andrews,  10 


SECT.  III.] 


y 


BLUTHENTHAL   V.    JONES. 


605 


BLUTHENTHAL   v.  JONES. 

SUPREME  COURT  OF  THE  UNITED  STATES,  DECEMBER  18,  1907- 
JANUARY  6,  1908. 

[Reported  in  208  United  States,  64.] 

MR.  JUSTICE  MOODY  delivered  the  opinion  of  the  court : 
This  is  a  writ  of  error  to  the  Supreme  Court  of  the  State  of  Florida. 
The  plaintiffs  in  error,  judgment  creditors  of  Miles  C.  Jones,  the  in- 
testate of  the  defendant  in  error,  sought  to  enforce  the  judgment. 
The  question  is  whether  Jones  was  discharged  from  the  debt  by  a 
discharge  in  bankruptcy  granted  to  him  on  November  7,  1903,  by  the 
District  Court  for  the  Southern  District  of  Florida.  The  debt  was 
provable,  and,  it  is  conceded,  would  be  barred  by  the  discharge,  were 
it  not  that  in  the  year  1900,  Jones  filed  his  petition  in  bankruptcy  in  *"' 
the  District  Coui't  for  the  Southern  District  of  Georgia,  and  on  objec- 
tion by  the  plaintiffs  in  error,  then  having  the  same  claim  as  is  now 
in  question,  a  discharge  was  refused.  Though  the  plaintiffs  in  error 
were  notified  of  the  proceedings  on  the  second  petition  for  bankruptcy 
and  their  debt  was  scheduled,  they  did  not  prove  their  claim  or  par- 
ticipate in  any  way  in  those  proceedings.  They  now  claim  that  their 
debt  was  not  affected  by  the  discharge  on  account  of  the  adjudication 
in  the  previous  proceedings. 

Section  1  of  the  Bankruptcy  Act  defines  a  discharge  as  "  the  release 
of  a  bankrupt  from  all  of  his  debts  which  are  provable  in  bankruptcy, 
except  such  as  are  excepted  by  this  act."  Section  14  of  the  amended 
act,  which  was  applicable  to  the  second  proceedings,  provides  that 
after  due  hearing  the  court  shall  discharge  the  bankrupt,  unless  he 
has  committed  one  of  the  six  acts  specified  in  that  section.  Sec-_ 
tionlTjif  the  amended  act  provides  that  a  discharge  in  bankruptcy 
shall  release  a  bankrupt  from  all  of  his  provable  debts,  with  four 
specified  exceptions,  which  do  not  cover  this  case.  The  discharge 
appears  to  have  been  regularly  granted,  and,  as  the  debt  in  question 
is  not  one  which,  by  the  terms  of  the  statute,  is  excepted  from  its 
operation,  on  the  face  of  the  statute  the  bankrupt  was  discharged 
from  the  debt  due  to  them.  There  is  no  reason  shown  in  this  record 
why  the  discharge  did  not  have  the  effect  which  it  purported  to  have. 

Bush.  400;  Corey  v.  Ripley,  57  Me.  69;  Bailey  v.  Corruthers,  71  Me.  172;  Talbott  v. 
Suit,  68  Md.  443;  Black  v.  Blazo,  117  Mass.  17;  Fuller  v.  Pease,  144  Mass.  .390;  II<  im 
v.  Chapman,  171  Mass.  347  ;  Stevens  »•.  Brown,  49  Miss.  597  ;  Brown  v.  Covenant  Mut. 
L.  I.  Co.,  86  Mo.  51  ;  Seymour  v.  Street,  5  Neb.  85;  Parker  v.  Atwood,  52  N.  H.  181  ; 
Linn  v.  Hamilton,  34  N.  J.  L.  305;  Ocean  Nat.  Bank  v.  Olcott,  46  N.  Y.  12;  Smith  v. 
Ramsey,  27  Ohio  St.  339  ;  Ravi  v.  Lapham,  27  Ohio  St.  452;  Howland  v.  Carson,  28 
Ohio  St.  625;  Alston  v.  Robinctt,  37  Tex.  56.  Ace.  Beardsley  r.  Hall,  36  Conn. 
270,  contra. 


606  POLLET  V.   COSEL.  [CHAP.  VIII. 

Undoubtedly,  as  in  all  other  judicial  proceedings,  an  adjudication 
refusing  a  discharge  in  bankruptcy,  finally  determines,  for  all  time 
and  in  all  courts,  as  between  those  parties  or  privies  to  it,  the  facts 
upon  which  the  refusal  was  based.  But  courts  are  not  bound  to 
search  the  records  of  other  courts  and  give  effect  to  their  judgments. 
If  there  has  been  a  conclusive  adjudication  of  a  subject  in  some  other 
court,  it  is  the  duty  of  him  who  relies  upon  it  to  plead  it  or  in  some 
manner  bring  it  to  the  attention  of  the  court  in  which  it  is  sought  to 
be  enforced.  Plaintiffs  in  error  failed  to  do  this.  When  an  applica- 
tion was  made  by  the  bankrupt  in  the  District  Court  for  the  Southern 
District  of  Florida,  the  judge  of  that  court  was,  by  the  terms  of  the 
statute,  bound  to  grant  it,  unless  upon  investigation  it  appeared  that 
the  bankrupt  had  committed  one  of  the  six  offenses  which  are  specified 
in  section  14  of  the  Bankruptcy  Act  as  amended.  An  objecting  credi- 
tor might  have  proved  upon  that  application  that  the  bankrupt  had 
committed  one  of  the  acts  which  barred  his  discharge,  either  by  the 
production  of  evidence  or  by  showing  that  in  a  previous  bankruptcy 
proceeding  it  had  been  conclusively  adjudicated,  as  between  him  and 
the  bankrupt,  that  the  bankrupt  had  committed  one  of  such  offenses. 
If  that  adjudication  had  been  proved,  it  would  have  taken  the  place 
of  other  evidence  and  have  been  final  upon  the  parties  to  it.  But 
nothing  of  this  kind  took  place.  The  plaintiffs  in  error  intentionally 
remained  away  from  the  court  and  allowed  the  discharge  to  be  granted 
without  objection. 

Since  the  debt  due  to  the  plaintiffs  in  error  was  a  debt  provable  in 
the  proceedings  before  the  District  Court  of  Florida,  and  was  not  one 
of  the  debts  exempted  by  the  statute  from  the  operation  of  the  dis- 
charge, it  was  barred  by  that  discharge.  The  Supreme  Court  of  the 
State  of  Florida  so  held,  and  its  judgment  must  be  affirmed.1 


POLLET   v.    COSEL. 
CIRCUIT  COURT  OP  APPEALS  FOR  THE  FIRST  CIRCUIT,  MAT,  1910. 

[Reported  in  179  Federal  Reporter,  488.] 

Before  COLT,  PUTNAM  and  LOWELL,  Circuit  Judges. 

PUTNAM,  Circuit  Judge : 

This  was  an  appeal  by  a  bankrupt  against  an  order  of  the  District 
Court  in  bankruptcy  giving  him  only  a  qualified  discharge.  The  bank- 
rupt petitioned  for  discharge,  and  the  creditor,  now  the  appellee,  duly 
filed  his  specification  of  objections  thereto,  setting  out  the  proceedings 
in  a  previous  bankruptcy  where  he  had  been  a  creditor.  The  result 

1  The  opinion  is  slightly  abbreviated. 


SECT.  III.]  POLLET   V.   COSEL.  607 

was  a  judgment  giving  a  limited  discharge,  the  limitation  being  cov- 
ered by  the  following  words : 

"Excepting  also  such  debts  as  were  provable  in  certain  proceedings 
in  bankruptcy  in  the  District  Court  of  the  United  States  for  the 
Southern  District  of  New  York,  wherein  on  May  18,  1905,  said  Robert 
S.  Pollet  was  duly  adjudged  a  bankrupt." 

This  exception  reserved  from  this  discharge  the  debt  of  the  appellee. 

In  the  prior  proceedings  the  discharge  was  not  in  form  refused,  but 
the  petition  therefor  was  dismissed  on  the  ground  that  the  bankrupt 
had  failed  to  prosecute,  and  to  appear  for  examination ;  laches  being 
apparently  specifically  assigned. 

We  are  of  the  opinion  that  the  judgment  of  the  District  Court  ap- 
pealed from  was  correct ;  and,  aside  from  our  own  conclusions  in  the 
matter,  we  should  feel  called  on  to  sustain  it  in  accordance  with  our 
practice  of  following  the  courts  of  appeals  in  other  circuits. 

At  the  outset  we  note  the  fact  that  section  14  of  the  Bankruptcy 
Statute  of  1898  provides  that: 

"  Any  person  may,  after  the  expiration  of  one  month,  within  the 
next  twelve  months  subsequent  to  being  adjudged  a  bankrupt,  file  an 
application  for  a  discharge." 

It  also  provides  that,  if  it  appears  that  the  bankrupt  was  unavoid- 
ably prevented  from  filing  his  application  within  12  months,  "it  may 
be  filed  within  but  not  after  the  expiration  of  the  next  six  months." 
Here  is  a  positive  limitation  of  18  months  given  by  statute  within 
which  an  application  for  a  discharge  may  be  made.  If  the  position 
of  the  bankrupt  in  this  case  is  correct,  it  amounts  to  a  repeal  of  this 
statutory  limitation.  The  fact  that  it  is  by  indirection,  instead  of  by 
a  delayed  application  in  the  original  proceeding,  is  immaterial,  because 
in  the  indirect  form  the  result  would  be  quite  as  effectual  to  the  defeat 
of  the  clear  letter  and  intention  of  the  statute  as  if  otherwise  accom- 
plished.. However,  we  do  not  let  the  case  rest  on  this  proposition, 
because  the  authorities  to  which  we  will  refer  are  conclusive  on  more 
general  grounds. 

The  bankrupt  relies  on  Bluthenthal  v.  Jones,  208  U.  S.  64,  66.  There 
is  nothing  in  it  which  helps  him.  The  opinion  used  the  following 
phraseology : 

"Undoubtedly,  as  in  all  other  judicial  proceedings,  an  adjudication 
refusing  a  discharge  in  bankruptcy  finally  determines,  for  all  time  and 
in  all  courts,  between  those  parties  or  privies  to  it,  the  facts  upon  which 
the  refusal  is  based." 

This  would  be  sufficient  to  bar  the  appellant  here,  if  there  had  been 
an  adjudication  on  the  prior  proceeding,  or  anything  beyond  a  mere 
dismissal.  Where  there  is  only  a  mere  dismissal  for  want  of  prosecu- 
tion, it  is  so  often  held  that  parties  are  not  fully  estopped  thereby  that 
the  language  we  have  quoted  does  not  necessarily  apply  here.  Never- 
theless, the  questions  we  have  here,  in  one  form  or  another,  have  been 
before  Circuit  Courts  of  Appeals  in  other  circuits  three  times :  First, 


y 

608 


HILL   V.    HARDING. 


[CHAP.  VIII. 


in  Re  Feigenbaum,  in  the  Second  Circuit,  121  Fed.  69  ;  second,  in 
Kuntz  v.  Young,  in  the  Eighth  Circuit,  131  Fed.  719  ;  and,  third,  again 
in  the  Second  Circuit,  in  Re  Kuffler,  151  Fed.  12.  In  the  first  case  a 
discharge  had  been  refused.  In  the  second  and  third  cases  the  peti- 
tion for  a  discharge  had  been  dismissed  for  want  of  prosecution,  the 
same  as  here.  And  yet  the  same  result  was  reached  practically  in 
each  case,  all  in  support  of  the  judgment  of  the  District  Court  now 
appealed  from.  In  the  last  case  the  precise  form  of  discharge  which 
was  granted  here  was  approved  in  advance.  Therefore,  both  on 
principle  and  on  authority,  we  accept  the  conclusions  of  the  District 
Court. 

The  judgment  appealed  from  is  affirmed,  and  the  appellee  recovers 
his  costs  of  appeal.1 


HILL   v.   HARDING. 

SUPREME  COURT  OF  THE  UNITED  STATES,  APRIL  16-MAY  13,  1889. 
{Reported  in  130  United  States,  699.] 

THIS  was  an  action  of  assumpsit,  commenced  by  Harding  and  others 
against  Hill  in  an  inferior  court  of  the  State  of  Illinois,  in  accordance 
ith  the  statutes  of  the  State,  by  attachment  of  the  defendant's  real 
estate.  The  attachment  was  dissolved,  in  accordance  with  those  stat- 
utes, by  the  defendant  giving  bond,  or,  more  strictly  speaking,  entering 
into  a  recognizance,  with  sureties,  conditioned  to  pay  to  the  plaintiffs 
"the  amount  of  the  judgment  and  costs  which  ma}7  be  rendered  against 
him  in  this  suit  on  a  final  trial  hereof,  within  ninety  days  after  such 
judgment  shall  be  rendered."  After  verdict  for  the  plaintiffs,  and 
before  judgment  thereon,  and  on  proceedings  in  bankruptcy  commenced 
more  than  four  months  after  the  attachment,  the  defendant  was  ad- 
judged a  bankrupt  under  the  Bankrupt  Act  of  the  United  States,  and 
far\  applied  to  the  State  court,  under  section  5, 106  of  the  Revised  Statutes,  for 

a  stay  of  proceedings  to  await  the  determination  of  the  court  in  bank- 
ruptcy upon  the  question  of  his  discharge.  The  application  was  denied, 
and  judgment  rendered  against  the  defendant  on  the  verdict,  and  upon 
a  bill  of  exceptions,  stating  these  facts,  that  judgment  was  affirmed  by 
^X^  the  Supreme  Court  of  the  State.  93  Illinois,  77.  Upon  a  former  writ 
of  error,  this  court  reversed  the  judgment  of  that  court,  and  remanded 
the  case  to  it  for  further  proceedings,  upon  the  ground  that  the  defend- 
ant was  entitled  to  the  stay  applied  for,  without  considering  the  ques- 

1  The  opinion  is  slightly  abbreviated. 

The  refusal  of  a  discharge  under  the  Federal  Act  of  1867  (Re  Hermann,  102  Fed. 
753,  106  Fed.  987),  or  under  a  state  insolvency  law  (Dean  v.  Justices,  173  Mass.  453), 
will  not  prevent  the  discharge,  under  the  present  Federal  law,  of  debts  provable  in 
the  former  proceedings. 


HILL   V.   HARDING.  609 


\A\  V(>^,» 

tion  whether  the  court  in  which  the  suit  was  pending  might,  after  the 
defendant  had  obtained  his  discharge  in  bankruptcy,  gender  a  special 
judgment  in  favor  of  the  plaintiff  for  the  purpose  of  charging  the  sure- 
ties on  the  recognizance  given  to  dissolve  the  attachment.  107  U.  S. 
631,  635. 

The  case  was  then  remanded  by  the  Supreme  Court  of  Illinois  to  the 
i/iferior  court  with  a  direction  that,  upon  its  satisfactorily  appearing 
that  the  defendant  since  the  verdict  had  obtained  his  discharge  in 
bankruptcy,  a  judgment  should  be  entered  for  the  plaintiff  and  against 
the  defendant  upon  the  verdict,  with  a  perpetual  stay  of  execution. 
The  inferior  court  thereupon  denied  a  motion  of  the  defendant  for  leave 
to  file  a  formal  plea  setting  up  his  discharge  in  bankruptcy  ;  admitted 
in  evidence  a  copy  of  that  discharge,  offered  by  the  plaintiff  and  ob- 
jected to  by  the  defendant  as  not  duly  verified  ;  refused  the  defendant's 
request  for  a  trial  by  jury  on  the  question  of  his  discharge  in  bank- 
ruptcy ;  denied  a  motion  to  enter  a  judgment  in  his  favor,  releasing 
him  from  all  liability  subsequent  to  the  commencement  of  the  proceed- 
ings in  bankruptcy,  on  account  of  all  causes  of  action  involved  in  this 
suit  ;  and  ordered  judgment  on  the  verdict,  pursuant  to  the  mandate 
of  the  Supreme  Court  of  the  State,  with  a  perpetual  stay  of  execution. 
Upon  the  bill  of  exceptions  the  judgment  and  order  were  affirmed  by 
the  Supreme  Court  of  Illinois.  116  Illinois,  92.  The  defendant  sued 
out  this  writ  of  error. 

Mr.  George  W.  Brandt,  for  plaintiff  in  error. 

Mr.  John  M.  Glover  and  Mr.  William  II.  JBarnum,  for  defendants 
in  error. 

Mr.  Justice  GRAY,  after  stating  the  case  as  above  reported,  delivered 
the  opinion  of  the  court. 

The  question  presented  b}'  this  writ  of  error  is  quite  distinct  from 
that  which  arose  when  the  case  was  before  this  court  at  a  former 
term,  as  reported  in  107  U.  S.  631.  The  only  point  then  decided  was 
that  the  defendant,  on  his  application  made  after  verdict  and  before 
judgment,  was  entitled  to  a  stay  of  proceedings  to  await  the  determi- 
nation of  the  court  in  bankruptcy  upon  the  question  of  his  discharge. 
The  question  not  then  passed  upon,  and  now  presented,  is  whether, 
since  he  has  obtained  his  discharge  in  bankruptcy,  there  is  anything 
in  the  provisions  of  the  Bankrupt  Act  to  prevent  the  State  court  from 
rendering  judgment  on  the  verdict  against  him,  with  a  perpetual  stay 
of  execution,  so  as  to  prevent  the  plaintiffs  from  enforcing  the  judg- 
ment against  him,  and  leaving  them  at  liberty  to  proceed  against  the 
sureties  in  the  bond  or  recognizance  given  to  dissolve  an  attachment 
made  more  than  four  months  before  the  commencement  of  the  proceed- 
ings in  bankruptcy. 

Such  attachments  being  recognized  as  valid  by  the  Bankrupt  Act 
(Rev.  Stat.  §  5044),  a  discharge  in  bankruptcy  does  not  prevent  the 
attaching  creditors  from  taking  judgment  against  the  debtor  in  such 
limited  form  as  may  enable  them  to  reap  the  benefit  of  their  attach- 


610  HILL   V.   HARDING.  [CHAP.  VIII. 

ment.  When  the  attachment  remains  in  force,  the  creditors,  notwith- 
standing the  discharge,  may  have  judgment  against  the  bankrupt,  to 
be  levied  only  upon  the  property  attached.  Peck  v.  Jenness,  7  How. 
612,  623  ;  Doe  v.  Childress,  21  Wall.  642.1  When  the  attachment  has 
been  dissolved,  in  accordance  with  the  statutes  of  the  State,  by  the 
defendant's  entering  into  a  bonder  recognizance,  with  sureties,  condi- 
tioned to  pa}-  to  the  plaintiffs,  within  a  certain  number  of  days  after 
any  judgment  rendered  against  him  on  a  final  trial,  the  amount  of  that 
judgment,  the  question  whether  the  State  court  is  powerless  to  render 
even  a  formal  judgment  against  him  for  the  single  purpose  of  charging 
such  sureties,  or,  in  the  phrase  of  Chief  Justice  Waite  in  Wolf  v.  Stix, 
99  U.  S.  1,  9,  whether  "the  judgment  is  defeated  by  the  bankruptcy 
of  the  person  for  whom  the  obligation  is  assumed,"  depends  not  upon 
any  provision  of  the  Bankrupt  Act,  but  upon  the  extent  of  the  authority 
of  the  State  court  under  the  local  law.  Whether  that  authority  is 
exercised  under  the  settled  practice  of  the  court,2  as  in  Illinois,  or  only 
by  virtue  of  an  express  statute,3  as  in  Massachusetts,  there  is  nqthinjg 
in  the  Bankrupt  Act  to  prevent  the  rendering  of  such  a  judgment. 
The  bond  or  recognizance  takes  the  place  of  the  attachment  as  a 
surety  for  the  debt  of  the  attaching  creditors  ;  the}-  cannot  dispute  the 
election,  given  to  the  debtor  by  statute,  of  substituting  the  new  security 
for  the  old  one ;  and  the  giving  of  the  bond  or  recognizance,  by  dis- 
solving the  attachment,  increases  the  estate  to  be  distributed  in  bank- 
ruptcy. The  judgment  is  not  against  the  person  or  property  of  the 
bankrupt,  and  has  no  other  effect  than  to  enable  the  plaintiff  to  charge 
the  sureties,  in  accordance  with  the  express  terms  of  their  contract, 
and  with  the  spirit  of  that  provision  of  the  Bankrupt  Act  which  declares 
that  '•  no  discharge  shall  release,  discharge,  o*r  affect  any  person  liable 
for  the  same  debt  for  or  with  the  bankrupt,  either  as  partner,  joint 
contractor,  indorser,  surety,  or  otherwise."  Rev.  Stat.  §  5118;  In  re 
Albrecht,  17  Bankr.  Reg.  287;  Hill  v.  Harding,  116  111.  92;  Barnstable 
Savings  Bank  v.  Higgins,  124  Mass.  115. 

1  Samson  v.  Burton,  5  Ben.  325,  341  ;  May  r.  Courtnay,  47  Ala.  185;  Ingraham  v. 
Phillips,  1  Day,  117 ;  Daggett  v.  Cook,  37  Conn.  341 ;  Alsop  v.  White,  45  Conn.  499 ; 
Bowman  v.  Harding,  56  Me.  559;  Perry  v.  Somerby,  57  Me.   552;  Belfast  Savings 
Bank  v.  Lancey,  93  Me.  422,  429 ;  Davenport  v.  Tilton,  10  Met.  320 ;  Bates  v.  Tappan, 
99  Mass.  376;  Bosworth  v.  Pomeroy,  112  Mass.  293;  Stockwell  v.  Silloway,  113  Mass. 
382 ;  Johnson  v.  Collins,  116  Mass.  392 ;  Kittredge  v.  Warren,  14  N.  H.  509  ;  Kittredge 
r.  Emerson,  15  N.  H.  227 ;  Batchelder  v.  Putnam,  54  N.  H.  84;  Stoddard  v.  Locke,  43 
Yt.  594,  ace.     Conf.,  Williams  v.  Atkinson,  36  Tex.  16. 

2  Re  Martin,  105  F.  753  ;  Re  Albrecht,  17  B.  R.  287;  Hill  v.  Harding,  116  111.  92; 
Kendrick  v.  Warren,  110  Md.  47  ;  Fisse  v.  Einstein,  5  Mo.  App.  78 ;  Zollar  v.  Janvrin,  49 
N.  H.  114 ;  Batchelder  v.  Putnam,  54  N.  H.  84 ;  Holyoke  v.  Adams,  1  Hun,  223 ;  Farrell 
v.  Finch,  40  Ohio  St.  337. 

Where  the  attachment  was  made  within  four  months  a  judgment  with  stay  of  execu- 
tion was  refused  against  sureties  on  the  attachment  bond.  House  v.  Schnadig,  235  111. 
301 ;  Crook  Homer  Co.  v.  Gilpin,  112  Md.  1.  See  also  Klipstein  v.  Allen-Miles  Co.,  136 
Fed.  385  (Ga.  C.  C.  A.). 

8  Wolf  v.  Stix,  99  U.  S.  1  ;  Odell  v.  Wootten,  38  Ga.  324 ;  Payne  v.  Able,  7  Bush.  344  ; 
Carpenter  v.  Tnrrell,  100  Mass.  450;  Barnstable  Savings  Bank  v.  Higgins,  124  Mass. 
115 ;  Goyer  Co.  v.  Jones,  79  Miss.  253 ;  Martin  v.  Kilbourne  (Tenn.),  1  Cent.  L.  J.  94. 


SECT.  III.]  CILLEY   V.   COLBY.  611 

If  the  bond  was  executed  before  the  commencement  of  proceedings 
in  bankruptcy,  the  discharge  of  the  bankrupt  protects  him  from  liability 
to  the  obligees,  so  that,  in  an  action  on  the  bond  against  him  and  his 
sureties,  any  judgment  recovered  by  the  plaintiffs  must  be  accompanied 
with  a  perpetual  stay  of  execution  against  him  ;  but  his  discharge  does 
not  prevent  that  judgment  from  being  rendered  generally  against  them. 
Wolf  v.  Stix,  above  cited.  If  the  sureties  should  ultimately  pa}'  the 
amount  of  any  such  judgment,  and  thereby  acquire  a  claim  to  be  reim- 
bursed by  their  principal  the  amount  so  paid  (which  is  a  point  not  now 
in  issue),  it  would  be  because  his  liability  to  them  upon  such  a  claim 
did  not  exist"  at  the  time  of  the  commencement  of  the  proceedings 
in  bankruptcy,  and  therefore  could  not  be  proved  in  bankruptcy  nor 
barred  by  the  discharge,  and  consequently  would  not  be  affected  by  any 
provision  of  the  Bankrupt  Act. 

The  courts  of  Illinois,  in  the  judgment  rendered  in  this  case,  having 
assumed  the  validity  of  the  defendant's  discharge  in  bankruptcy,  he 
has  not  been  prejudiced  by  the  rulings  denying  leave  to  file  after  verdict 
a  formal  plea  of  the  discharge  in  bankruptcy,  and  admitting  in  evidence 
an  unverified  cop}'  of  the  discharge,  and  refusing  his  request  for  a  trial 
by  jury  upon  that  issue.  Judgment  affirmed.^ 


CILLF.Y  v.  COLBY. 

SUPREME  COURT  OF  NEW  HAMPSHIRE,  JUNE,   1881. 
[Reported  in  61  New  Hampshire,  63.] 

ASSUMPSIT,  on  a  note  dated  July  14,  1876,  signed  by  the  defendant 
as  surety.  The  principal  filed  his  petition  in  bankruptcy  February  6, 
1877.  The  plaintiff  proved  his  claim,  and  voted  for  assignee.  Subse- 
quently the  bankrupt  submitted  to  his  creditors  a  proposition  for  a 
composition  of  10  per  cent  in  satisfaction  of  their  claims,  under  sec- 
tion 17  of  the  amendment  to  the  bankrupt  act  approved  June  22,  1874. 
The  creditors  passed  a  resolution  accepting  the  proposition,  the  plain- 
tiff voting  to  ratify  and  confirm  it.  His  signature  was  necessary  to 
make  the  required  amount  and  confirm  the  resolution.  The  composi- 
tion was  accepted,  and  ordered  to  be  recorded.  The  10  per  cent  was 
paid,  and  the  creditors,  including  the  plaintiff,  signed  a  receipt  in  full 
payment  and  liquidation  of  their  respective  claims  in  composition  in 
bankruptcy,  November,  1877. 

S.  L.  Bowers,  for  the  plaintiff. 

Edes  <&  Newton,  for  the  defendant. 

STANLET,  J.  The  defendant  is  liable,  unless  the  plaintiffs  vote  in 
favor  of  a  resolution  accepting  the  proposition  of  10  per  cent,  to  be 

1  Re  Rosenthal,  108  Fed.  Rep.  368,  ace. 


612  PHELPS   V.    BORLAND.  [CHAP.  VIII. 

paid  to  the  creditors  in  discharge  of  their  claims  against  the  principal, 
has  the  effect  to  release  him.  In  a  composition,  no  actual  discharge  of 
the  principal  is  given ;  but  the  payment  of  the  amount  offered,  and  its 
acceptance  by  the  creditor,  is  in  effect  a  discharge,  for  by  it  all  right  of 
action  against  the  bankrupt  is  barred.  "  No  discharge  shall  release, 
discharge,  or  affect  any  person  liable  for  the  same  debt  for  or  with 
the  bankrupt,  either  as  partner,  joint  contractor,  indorser,  surety,  or 
otherwise."  U.  S.  Rev.  St.  §  5,118.  The  voluntary  discharge  of  the 
principal  by  the  creditor  discharges  the  surety ;  but  proceedings  in 
bankruptcy,  even  though  the  creditor  participates  therein,  do  not  have 
the  effect  of  a  voluntary  discharge.  It  is  not  the  act  of  the  creditor 
alone  that  makes  the  composition  valid.  A  majority  in  number  and 
amount  must  concur  in  consenting,  and  the  court  must  also  give  its 
consent.  If  the  plaintiff's  consent  was  necessary,  and  if  his  withhold- 
ing it  would  have  prevented  the  bankrupt  from  obtaining  his  discharge, 
it  does  not  follow  that  his  signature  alone  was  effectual.  It  was  the 
concurrent  act  of  a  majority  in  number  of  the  creditors  and  in  amount 
of  their  debts,  with  the  assent  of  the  court,  that  made  the  composition 
effectual.  Unless  these  three  conditions  had  coexisted,  there  would 
have  been  no  valid  composition.  Guild  v.  Butler,  122  Mass.  498; 
Farwell  v.  Raddin,  129  Mass.  7;  Hill  v.  Trainer,  49  Wis.  537. 

The  same  construction  is  given  by  the  English  courts  to  their  statute 
of  compositions,  from  which  our  own  was,  no  doubt,  copied.  Browne 
v.  Carr,  7  Bing.  508;  Ellis  v.  Wilmot,  L.  R.  10  Ex.  10;  Simpson  v. 
Heuning,  L.  R.  10  Q.  B.  406  ;  Ex  parte  Jacobs,  L.  R.  10  Ch.  211. 

Judgment  for  the  plaintiff.1 


PHELPS  v.  BORLAND. 
COURT  OF  APPEALS  OF  NEW  YORK,  NOVEMBER,  1886. 

[Reported  in  103  New  York,  406.] 

FINCH,  J.  The  defendant,  a  citizen  of  this  counfoy,  drew  a  bill  of 
exchange  to  his  own  order  at  sixty  days'  sight  upon  Johnston  &  Co., 
who  were  English  merchants  residing  in  Liverpool.  The  defendant 
sold  it  to  the  plaintiffs,  who  were  American  bankers,  residing  in  New 
York.  The  bill  was  duly  accepted  by  Johnston  &  Co.,  payable  in 

1  In  none  of  the  cases  cited  by  the  court  was  it  found  as  a  fact  that  except  for  the 
plaintiff's  assent  the  bankrupt  would  not  have  received  a  discharge.  The  fact  that  the 
plaintiff  assented  to  a  discharge  in  bankruptcy  has  generally  been  held  not  to  release 
a  surety.  Browne  v.  Carr,  7  Bing.  508;  Megrath  v.  Gray,  L.  R.  9  C.  P.  216;  Ellis  v. 
Wilmot,  L.  R.  10  Ex.  10;  Ex  p<irte  Jacobs,  L,  R.  10  Ch.  211  (overruling  Wilson  v. 
Lloyd,  L.  R.  16  Eq.  60) ;  Re  Burchell,  4  Fed.  Rep.  406 ;  Guild  v.  Butler,  122  Mass.  498 ; 
Mason  &  Hamlin  Co  v.  Bancroft,  1  Abb.  N.  C.  415;  Hill  v.  Trainer,  49  Wis.  537. 
But  see  contra,  Re  McDonald,  14  B.  R.  477 ;  Galloway  v.  Snapp,  78  Ky.  561 ;  Union 
Nat.  Bank  v.  Grant,  48  La.  Ann.  18. 


SECT.  III.]  PHELPS   V.   BORLAND.  613 

London,  who  thereby,  as  to  the  plaintiffs,  became  the  principal  debtors, 
the  drawer  being  contingently  liable  upon  their  default  and  holding  the 
position  of  a  surety  for  the  payment  of  their  debt.  The  bill  was  pro- 
tested for  non-payment  at  its  maturit}',.  Johnston  &  Co.  having  failed 
and  being  unable  to  meet  their  liabilities,  and  the  holders  now  sue  the 
drawer  to  recover  its  amount.  The  latter  defends  upon  the  ground 
that,  as  surety,  he  was  entitled,  upon  payment  of  the  bill,  to  be  subro- 
gated  to  the  rights  of  the  holder,  and  that  the  latter  had  so  destroyed 
or  materially  impaired  those  rights  as  to  have  lost  all  remedy  against 
the  drawer.  The  fact  relied  on  as  the  cause  and  basis  of  this  result  is, 
that  the  acceptors  were  discharged  in  bankruptcy  upon  a  compromise 
by  the  English  courts,  and  that  the  plaintiffs,  who  were  originally  not 
parties  to  the  proceeding,  became  so  afterward  voluntarily,  and  proved 
their  claim  and  accepted  the  composition  decreed,  whereby  the  judg- 
ment became  binding  upon  them  in  this  country  as  well  as  in  England, 
and  so  the  acceptor  was  wholly  discharged  and  his  right  of  subrogation 
as  surety  rendered  valueless.  The  answer  made  to  this  contention  is, 
that  the  foreign  discharge  in  bankruptcy  was  operative  against  the 
holders  in  this  country,  even  although  they  had  never  become  parties 
to  the  proceeding,  and  so  the  release  of  the  acceptor  flowed  from  no  act 
of  theirs,  and  consequently  the}*  had  not  invaded  or  affected  the  draw- 
er's rights. 

The  authority  pressed  upon  our  attention,  and  which  we  are  asked  to 
follow,  is  that  of  May  v.  Breed,  7  Gush.  15.  The  deserved  reputation 
of  the  court,  and  the  great  ability  of  its  reasoning,  may  well  make  us 
hesitate  and  reflect  before  adopting  a  contrary  conclusion  ;  but,  deem- 
ing the  question  substantially  settled,  both  in  our  own  State  and  in  the 
federal  courts,  adversely  to  the  opinion  cited,  we  feel  it  our  duty  to 
acquiesce  in  that  result.  Two  propositions  are  conceded  on  all  sides. . 
That  the  title  of  a  foreign  assignee,  conferred  by  the  foreign  bankrupt 
law,  ma)1  be  asserted  in  our  courts,  but  cannot  operate  or  be  effectual 
as  against  our  own  citizens  pursuing  their  remedies  as  creditors  against 
the  bankrupt  or  his  property  within  our  jurisdiction,  or  when  the  recog- 
nition of  such  title  is  against  our  public  policy  is  conceded  in  May  v. 
Breed  and  has  quite  recently  been  decided  by  us.  In  re  Waite,  99 
N.  Y.  433.  And  that,  as  between  the  States  of  the  Union,  a  discharge 
by  the  law  of  one  will  not  bar  the  right  of  a  creditor  who  is  a  citizen  of 
another  and  not  a  party  to  the  proceeding  is  equally  well  settled  by  a 
substantial  concurrence  of  authority.  The  argument  of  the  learned 
chief  justice  in  the  Massachusetts  case  is  largely  occupied  with  an 
effort  to  show  that  these  two  propositions  do  not  decide  the  case  of  a 
discharge  by  the  foreign  court  of  a  debt  or  obligation  contracted  under 
the  law  of  its  jurisdiction,  and  to  be  there  paid  and  discharged.  It  is 
asserted  that  the  cases  between  citizens  of  different  States  in  our  own 
countrj*  rest,  not  upon  doctrines  of  international  law,  but  upon  provi- 
sions of  the  Federal  Constitution  and  governmental  relations  peculiar  to 
our  national  organization.  The  most  important  and  authoritative  of 


614  PHELPS    V.    BORLAND.  [CHAP.  VIIL 

these  is  Ogden  v.  Saunders,  12  Wheat.  217,  and  it  is  subjected  to  the 
double  criticism  that  it  did  not,  in  all  respects,  reflect  the  opinion  of 
the  court,  and  that  it  decided  no  question  of  international  law.  The 
first  suggestion  was  fully  and  finally  answered  in  Baldwin  v.  Hale, 
1  Wall.  223,  where  the  authority  assailed  was  vindicated,  and  its  doc- 
trine expressly  ratified  and  affirmed.  The  second  suggestion  seems  to 
us  not  sustained  by  a  careful  reading  of  the  case.  The  question  before 
the  court  was  stated  to  be  "whether  a  discharge  of  a  debtor  under  a 
State  insolvent  law  would  be  valid  against  a  creditor  and  citizen  of 
another  State  who  has  never  voluntarily  subjected  himself  to  the  State 
laws  otherwise  than  by  the  origin  of  his  contract,"  and  was  argued  in 
two  forms :  first,  as  a  question  of  international  law  ;  and,  second,  un- 
der the  Federal  Constitution.  Upon  the  first  branch  of  the  argument, 
the  English  rule  was  admitted  to  be  that  "  the  assignment  of  the  bank- 
rupt's effects  under  a  law  of  the  country  of  the  contract  should  carry 
the  inteYest  in  his  debts  wherever  his  debtor  ma}'  reside,"  and  then  it 
was  declared  to  be  "  perfectly  clear  that  in  the  United  States  a  differ- 
ent doctrine  has  been  established,  and  since  the  power  to  discharge  the 
bankrupt  is  asserted  on  the  same  principle,  with  the  power  to  assign 
his  debts,  that  the  departure  from  it  in  the  one  instance  carries  with  it 
a  negation  of  the  principle  altogether."  At  a  later  stage  of  the  opin- 
ion, attention  is  called  to  the  circumstances  that  the  discharge  is  always 
and  necessarily  an  adjudication  of  a  court,  and  depends  wholly  upon 
the  operative  force  of  that  adjudication  ;  and  that  neither  comity  nor 
justice  requires  that  we  shall  hold  one  of  our  citizens  bound  by  a  judg- 
ment of  a  foreign  court,  to  which  he  was  not  a  party,  could  not  be  com- 
pelled to  be  a  part}',  and  of  which  he  might  have  had  no  notice.  I  have 
less  hesitancy  in  thus  asserting  the  error  of  Ma}*  v.  Breed,  in  constru- 
ing the  decision  of  the  federal  court  as  standing  outside  of  interna- 
tional law,  and  so  not  authority  in  a  case  like  this,  because  I  observe 
that  Mr.  Redfield,  in  editing  a  new  edition  of  Story  on  the  Conflict  of 
Laws,  has  deemed  it  necessary  to  criticise  his  author's  assertion  of  the 
same  error  (§  341  a),  and  more  especially  because  the  Supreme  Court 
itself,  in  the  later  case  of  Baldwin  v.  Hale,  supra,  put  its  decision 
mainly  upon  a  ground  not  peculiar  to  our  federal  relations,  but  upon 
the  effect  of  a  foreign  judgment.  This  last  case,  also,  referring  to  the 
Massachusetts  doctrine  "that  if  the  contract  was  to  be  performed  in 
the  State  where  the  discharge  was  obtained,  it  was  a  good  defence 
to  an  action  on  the  contract,  although  the  plaintiff  was  a  citizen  of 
another  State  and  had  not,  in  any  manner,  become  a  party  to  the 
proceedings,"  expressly  repudiated  the  conclusion,  saying  that,  "  irre- 
spective of  authority,  it  would  be  difficult,  if  not  impossible,  to  sanction 
that  doctrine." 

In  our  own  State  two  cases  have  been  decided  in  substantial  accord 
with  the  ruling  of  the  federal  court.  Gardner  v.  Oliver  Lee  &  Co.'s 
Bank,  11  Barb.  558;  In  re  Waite,  supra.  The  latter  case  stated  the 
general  rule  without  grafting  upon  it  any  exception  founded  upon  the 


SECT.  III.]  PHELPS   V.   BORLAND.  615 

origin  of  the  contract.  We  are  content  to  follow  these  authorities 
without  entering  into  the  wide  and  difficult  discussion  ,in  which  they 
culminated.  It  follows,  therefore,  in  the  present  case  that  the  foreign 
discharge  would  have  been,  in  and  of  itself,  no  defence  to  the  American 
holder  of  the  bill.  If  property  of  the  bankrupt  should  be  found  in  our 
jurisdiction,  the  plaintiffs  were  at  liberty  to  proceed  against  it  by  at- 
tachment and  collect  their  debt  out  of  such  property,  and  the  foreign 
bankruptcy  proceedings  would  neither  prevent  nor  stand  in  the  way, 
for  the  sufficient  reason  that  their  oul}'  force  in  our  jurisdiction  comes 
from  our  consent,  and  we  have  chosen  thus  to  limit  that  consent.  The 
right  remaining  to  the  plaintiffs  was  a  valuable  right.  It  charged  with 
the  payment  of  the  protested  bill  any  present  or  future  acquisitions  of 
the  acceptors  which  might  come  into  our  jurisdiction,  and  might  result 
in  the  collection  of  the  whole  debt,  or  a  compromise  settlement  induced 
by  the  desire  or  interest  of  the  debtors  to  have  access  to  our  markets, 
and  freedom  to  resume  their  business  among  us.  To  that  right,  thus 
valuable  and  material,  it  was  the  privilege  of  the  surety  to  succeed,  b}' 
way  of  subrogation,  whenever  he  should  pay  the  debt,  and  the  plain- 
tiffs could  not  deprive  him  of  it  or  impair  and  destro}'  it,  except  at  the 
peril  of  releasing  him  from  his  liability.  Just  that  was  what  the  plain- 
tiffs did.  Tempted  b}*  the  compromise  offered,  they  sought  to  obtain 
the  defendant's  consent  to  its  acceptance  by  him.  That  consent  he 
withheld,  but  the}',  acting  upon  their  own  conceptions  of  what  was 
most  for  their  interest,  voluntarily  submitted  themselves  and  their 
rights  as  creditors  to  the  foreign  jurisdiction,  proved  their  debt,  and 
accepted  the  compromise  decreed.  The  condition  of  the  dividend  was 
a  release  of  the  debtor.  They  could  not  take  the  compromise  and 
avoid  the  condition,  and  so  b}*  their  act  they  discharged  the  acceptors 
entirely  and  everywhere.  That  such  is  the  effect  of  their  voluntary 
submission  to  the  foreign  jurisdiction  is  inevitable  on  principle,  and  has 
been  often  decided.  Gardner  v.  Oliver  Lee  &  Co.'s  Bank,  supra; 
Clay  v.  Smith,  3  Pet.  (U.  S.),  411.  The  unavoidable  consequence 
follows.  The  creditor  having  by  his  own  voluntary  act  released  the 
debtor  from  all  remaining  liability  his  surety  is  discharged.  The  courts 
below  so  held,  and  we  think  correctl}'. 

But  another  suggestion  has  arisen  among  us,  original  with  the  court, 
and  not  at  all  urged  in  the  brief  of  counsel  prepared  witli  great  thor- 
oughness and  ability.  That  suggestion  is  that  Borland  consented  to 
the  acceptance  of  the  dividend  by  plaintiffs,  and  so  lost  the  right  to 
complain ;  and  the  evidence  on  which  this  is  founded  is  said  to  exist  in 
two  letters  which  passed  between  the  parties.  It  is  not  pretended  that 
plaintiffs'  letter  asks  Borland's  consent  to  their  acceptance  of  the  divi- 
dend, or  that  he,  in  terms,  gave  that  consent,  but  such  consent  not 
directly  asked  or  given  is  sought  to  be  inferred  from  what  was  written. 
The  letters  are  but  the  declarations  of  the  parties  bearing  on  the  issue, 
and  none  the  less  so  because  they  happen  to  be  in  writing.  The  proper 
inference  to  be  drawn  from  them  were  questions  of  fact,  more  or  less 


616  IN    RE    MARSHALL   PAPER   CO.  [CHAP.  VIII. 

affected  by  the  other  evidence  in  the  case.  Whether,  from  the  lan- 
guage used,  Borland  meant  to  give  his  consent,  and  waive  his  rights, 
or  plaintiffs  understood  him  to  consent,  and  acted  upon  that  under- 
standing, or  without  it,  were  certainly  inquiries  for  the  jury,  and  not 
for  the  court.  But  neither  party  asked  to  go  to  the  jury  upon  anjr 
question  of  fact,  and  each  by  asking  judgment  in  his  own  favor  waived 
any  possible  question  of  fact,  and  conceded  that  only  questions  of  law 
were  involved.  AVere  this  otherwise,  the  result  would  not  be  changed. 
As  I  have  said,  plaintiffs  did  not  ask  Borland's  consent  to  their  prov- 
ing their  own  claim.  On  the  contrary,  they  asked  him  to  prove  his.  in 
order  that  they  might  not  be  compelled  to  prove  theirs.  The  plain 
meaning  was,  we  ask  you  to  prove  }'ours  ;  if  you  decline,  we  shall  prove 
ours  at  all  events.  To  this  request,  the  only  one  made,  Borland  re- 
turns a  refusal.  That  it  is  politely  said  in  the  phrase  addressed  to  the 
counsel,  "I  would  much  prefer  that  your  clients  adopt  some  other 
course  for  securing  to  themselves  dividend,"  means  only  in  connection 
with  their  explicit  avowal,  do  it  yourselves,  if  yon  choose  to  do  it  at 
all.  And  then,  as  if  fearing  the  very  misconstruction  now  suggested, 
he  adds :  "  I  think  uppn  the  whole  it  may  be  better  to  leave  the  matter 
as  it  stands  at  present,  rather  than  complicate  it  by  assuming  to  be 
bailee  of  any  funds  they  may  claim  as  theirs.  I  do  not  aspire  to  the 
position."  Unquestionably  his  meaning  is,  it  is  best  that  neither  of  us 
touch  this  dividend,  and  I,  at  least,  refuse.  Language  must  be  misin- 
terpreted to  make  this  a  consent,  and  a  waiver  of  the  surety's  rights. 

The  judgment  should  be  affirmed,  with  costs. 

All  concur,  except  EARL,  J.,  dissenting,  and  RUGER,  C.  J.,  not  voting. 

Judgment  affirmed.1 


IN  RE  MARSHALL  PAPER   COMPANY. 

CIRCUIT  COURT  OF  APPEALS  FOR  THE  FIRST  CIRCUIT,  JUNE  7,  1900. 
[Reported  in  102  Federal  Reports,  872.] 

BEFORE  COLT  and  PUTNAM,  Circuit  Judges,  and  WEBB,  District 
Judge. 

COLT,  Circuit  Judge.  This  appeal  and  petition  relate  to  two  orders 
or  decrees  entered  by  the  District  Court  in  the  matter  of  the  Marshall 
Paper  Company,  bankrupt.  95  Fed.  419.  The  question  raised  by  the 
appeal  is  whether  the  order  of  the  District  Court  refusing  to  grant  the 
petitioner  a  discharge  was  proper. 

The  District  Court  based  its  decision  on  two  grounds :  First,  it 
doubted,  at  least  in  some  cases,  whether  a  corporation  was  entitled 

1  Gardner  v.  Lee,  11  Barb.  558;  Third  Nat.  Bank  v.  Hastings,  134  N.  Y.  501, 
505,  ace. 


SECT.  III.]  IN    RE   MARSHALL   PAPER  CO.  617 

under  the  act  to  a  discharge  ;  second,  it  held  that  the  court  could  re- 
fuse a  discharge  for  causes  other  than  those  mentioned  in  section  14  of 
the  act,  and  it  declined  to  grant  a  discharge  in  the  present  case  by 
reason  of  the  injurious  effect  it  might  have  upon  the  creditors'  right  to 
enforce  the  secondary  liability  of  the  directors  of  the  corporation  under 
the  Massachusetts  statute. 

We  think  a  corporation  is  entitled  to  a  discharge  under  the  bank- 
rupt act  of  1898.  The  provisions  of  the  act,  supplemented  by  its  legis- 
lative history,  forbid,  in  our  opinion,  any  other  conclusion.  By  section  1, 
par.  19,  it  is  declared  that  ''persons"  shall  include  corporations,  ex- 
cept where  otherwise  specified  ;  by  section  14  a,  that  any  person  may  file 
an  application  for  a  discharge  ;  and  by  section  4  b,  that  any  corporation 
may  be  adjudged  an  involuntary  bankrupt  upon  default  or  an  impartial 
trial,  and  shall  be  subject  to  the  provisions  and  entitled  to  the  benefits 
of  this  act.  As  any  person  may  file  an  application  for  a  discharge, 
and  as  a  corporation  is  a  k' person,"  within  the  meaning  of  the  act,  and 
entitled  to  the  benefits  of  the  act,  it  follows  that  a  corporation  is  en- 
titled to  a  discharge  under  the  act. 

The  bankrupt  act  of  1867  expressly  excepted  corporations  from  the 
right  to  a  discharge.  Rev.  St.  §  5,122.  This  exception  was  retained 
in  the  earlier  drafts  of  the  present  act,  but  it  was  stricken  out  before 
the  act  became  a  law.  To  quote  from  Judge  Lowell's  opinion  in  the 
District  Court : 

"  Some  earlier  drafts  of  section  14  of  the  present  act  — drafts  which 
in  other  respects  resemble  almost  literally  the  section  as  passed  —  began 
with  the  words,  'Any  person  not  a  corporation.'  See  St.  1,694,  52d 
Cong.,  1st  Sess.,  §50;  H.  R.  9,348,  52d  Cong.,  1st  Sess.,  §  13;  St. 
1,035,  55th  Cong.,  2d  Sess.,  §  13,  of  the  substitute.  See  also  the 
similar  change  made  in  drafting  section  17  of  the  act."  95  Fed.  421. 

Where  a  former  act  contains  an  express  exception,  and  the  first  drafts 
of  a  later  act  relating  to  the  same  subject  contain  the  same  exception, 
and  this  exception  is  omitted  from  the  act  as  finally  enacted,  and  other 
provisions  in  the  act  are  made  to  conform  with  this  change,  we  cannot 
but  conclude  that  Congress  intended  to  make  the  change,  and  the 
courts  should  not  seek  to  render  it  nugatory  by  a  forced  construction. 

The  bankrupt,  under  section  14,  is  entitled  to  a  discharge  as  a  matter 
of  right,  provided  he  has  not  committed  an}-  of  the  offences  therein 
enumerated. 

By  this  provision,  the  judge  shall  hear  the  application  and  discharge 
the  applicant  unless  he  is  found  guilty  of  some  one  of  the  prescribed 
offences.  The  court  is  not  authorized  to  deny  the  application  for  dis- 
charge upon  a  ground  not  set  forth  in  this  section.  In  re  Black  (D.  C.) 
97  Fed.  493.  A  refusal  to  grant  a  discharge  cannot  be  said  to  rest  in 
the  discretion  of  the  judge.  The  words,  "  investigate  the  merits  of  the 
application,"  must  be  taken  in  connection  with  the  context.  To  con- 
strue these  words  as  if  the}'  stood  alone  and  disconnected  from  wluit 
follows  would  be  to  leave  the  whole  question  of  discharge  in  the  dis- 


618  IN    RE    MARSHALL   PAPER   CO.  [CHAP.  VIII. 

cretion  of  the  court.  Looking  at  the  entire  section,  we  do  not  think 
these  words  will  bear  such  a  construction,  however  desirable  it  may 
seem  to  the  court  in  a  particular  case  to  so  interpret  them.  It  seems 
to  us  that  Congress  in  this  section  clearly  specifies  the  only  causes  for 
which  a  discharge  can  be  denied,  and  leaves  to  the  court  the  sole  duty 
of  deciding,  after  due  heariugr  whether  such  cause  exists. 

When  the  bankrupt  files  his  petition  for  a  discharge,  the  only  facts 
pleadable  in  opposition  thereto  are  those  which  show  that,  under  the 
provisions  of  section  14,  he  is  not  entitled  to  a  discharge.  In  other 
words,  it  must  be  shown  that  he  has  committed  some  one  of  the  offences 
described;  otherwise,  the  judge  "•  shall"  discharge  the  applicant. 

The  right  to  a  discharge,  and  the  effect  of  a  discharge,  are  wholly 
distinct  propositions.  The  proper  time  and  place  for  the  determination 
of  the  effect  of  a  discharge  is  when  the  same  is  pleaded  or  relied  upon 
by  the  debtor  as  a  defence  to  the  enforcement  of  a  particular  claim. 
The  issue  upon  the  effect  of  a  discharge  cannot  properly  arise  or  be  con- 
sidered in  determining  the  right  to  a  discharge.  In  re  Rhutassel  (D.  C.) 
96  Fed.  597  ;  In,  re  Thomas  (D.  C.)  92  Fed.  912  ;  In  re  Mussey  (D.  C.) 
99  Fed.  71. 

A  discharge  releases  only  the  bankrupt's  personal  liability.  In 
accordance  with  this  underlying  principle,  section  16  of  the  act  pro- 
vides :  — 

"  The  liability  of  a  person  who  is  a  co-debtor  with,  or  guarantor  or 
in  any  manner  a  surety  for,  a  bankrupt  shall  not  be  altered  by  the  dis- 
charge of  such  bankrupt." 

The  theor}*  of  a  discharge  as  well  as  this  express  provision  of  the  act 
forbid  that  the  secondary  liability  of  the  directors  of  a  corporation,  un- 
der the  Massachusetts  statute,  should  be  affected  by  the  corporation's 
discharge  in  bankruptcy.  Such  a  discharge  does  not  prevent  creditors 
from  taking  judgment  in  the  State  court  against  the  corporation  in 
such  limited  form  as  may  enable  them  to  reap  the  benefit  of  the  direct- 
ors' liability.  The  rendering  of  such  a  judgment  depends  upon  the 
authority  of  the  State  court  under  the  local  law.  There  is  nothing  in 
the  bankrupt  act  to  prevent  it.  The  judgment  will  not  be  against  the 
person  or  property  of  the  bankrupt,  and  has  no  other  effect  than  to  en- 
able the  plaintiff  to  charge  the  directors  in  accordance  with  the  State 
statute.  Hill  v.  Harding,  130  U.  S.  699,  702,  703,  9  Sup.  Ct.  725,  32 
L.  Ed.  1,083. 

A  suit  in  the  State  court  against  a  corporation  has  a  double  aspect. 
So  far  as  it  is  brought  against  a  corporation  for  a  debt  provable  in 
bankruptcy,  its  discharge  in  bankruptcy  may  be  pleaded  as  a  bar.  So 
far  as  it  is  brought  to  obtain  a  judgment  against  the  corporation  for  the 
purpose  of  subsequently  enforcing  the  secondary  liabilitj-  of  the  direct- 
ors under  the  State  statute,  the  discharge  is  no  bar,  and  the  court  may 
render  a  special  judgment  for  that  purpose.  Hill  v.  Harding,  supra. 
Section  37  of  the  act  of  1867  (Rev.  St.  §  5,122)  expressly  excluded  cor- 
porations from  a  discharge.  Under  that  act  it  was  decided  in  New 


SECT.  III.]  IN   RE  MARSHALL  PAPER  CO.  619 

Lamp  Chimney  Co.  v.  Ansonia  Brass  &  Copper  Co.,  91  U.  S.  656,  23 
L.  Ed.  336,  that  a  creditor  of  a  manufacturing  corporation,  which  was 
duly  adjudged  a  bankrupt,  who  has  proved  his  claim  and  received  a 
dividend  thereon,  does  not  thereby  waive  his  right  of  action  for  so 
much  of  the  claim  as  remains  unpaid.  Near  the  close  of  the  opinion  in 
that  case  (page  666,  91  U.  S.,  and  page  340,  23  L.  Ed.)  Mr.  Justice 
Clifford,  in  discussing  the  general  question  of  discharge  in  bankruptcy 
and  the  reasons  therefor,  observed  :  — 

"  Certificates  of  discharge  are  granted  to  the  individual  bankrupt  '  to 
free  his  faculties  from  the  clog  of  his  indebtedness,'  and  to  encourage 
him  to  start  again  in  the  business  pursuits  of  life  .  .  .  unfettered  with 
past  misfortunes." 

As  a  reason  why  the  act  excluded  corporations  from  a  discharge,  the 
opinion  goes  on  to  say  :  — 

"  Stockholders  could  not  be  held  liable  in  such  a  case  if  the  corpora- 
tion is  discharged,  nor  could  the  creditor  recover  judgment  against  the 
corporation  as  a  necessary  preliminary  step  to  the  stockholder's  indi- 
vidual liability." 

This  general  expression  by  the  Supreme  Court,  which  was  unneces- 
sary to  the  determination  of  the  particular  question  before  the  court, 
because  the  act  of  1867  expressly  denied  the  benefit  of  a  discharge  to 
corporations,  is  not  binding  upon  this  court  in  another  case  arising  under 
an  act  which  entitles  a  corporation  to  a  discharge. 

The  principle  of  a  qualified  judgment  against  a  bankrupt  after  his 
discharge,  for  the  sole  purpose  of  establishing  a  secondary  liability, 
which  is  recognized  in  the  later  case  of  Hill  v.  Harding,  supra,  was  not 
discussed  by  Mr.  Justice  Clifford,  because  it  was  neither  necessary  nor 
pertinent  to  the  determination  of  the  questions  which  were  raised  and 
decided  in  the  case  then  under  consideration.  The  petitioning  corpora- 
tion having  duly  filed  its  application  for  a  discharge  under  section  14, 
and  not  having  been  adjudged  guilty  of  any  of  the  offences  therein  men- 
tioned, we  are  of  the  opinion  that  it  was  entitled  to  a  discharge. 

In  the  original  petition,  which  was  heard  with  this  appeal,  we  are 
asked  to  revise  the  order  of  the  District  Court  refusing  to  enjoin  certain 
actions  at  law  in  the  State  court,  under  section  11  «,  until  the  question 
of  discharge  is  determined.  As  we  have  alread.y  determined  that  the 
bankrupt  is  entitled  to  a  discharge,  it  becomes  unnecessary  to  decide 
the  point  raised  by  the  petition. 

In  No.  301,  the  decree  of  the  District  Court  refusing  a  discharge  is 
reversed,  and  that  court  is  directed  to  enter  a  decree  discharging  the 
Marshall  Paper  Company,  and  the  costs  of  this  court  are  awarded  to  the 
appellant. 

In  No.  299,  it  is  ordered,  adjudged,  and  decreed  that  the  petition  be 
dismissed,  without  prejudice,  and  without  costs.1 

1  In  Train  v.  Marshall  1'aper  Co.,  180  Mass.  513,  the  court  held  the  discharge  of 
the  corporation  barred  relief  against  the  directors.  Cf.  Way  v.  Barney,  116  Minn. 
285. 


620  WOOD    &   SELICK   V.   VANDERVEER.  [CHAP.  VIII. 


WOOD  &    SELICK  v.  VANDERVEER. 

SUPREME  COURT  OF  NEW  YORK,  APPELLATE  DIVISION,  DECEMBEK 

TERM,   1900. 

[Reported  in  55  New  York,  Appellate  Division,  549.] 

RUMSEY,  J.  This  action  was  brought  against  three  persons  as  trus» 
tees  of  the  Tonne}'  Company  to  enforce  the  liability  imposed  upon  the 
directors  of  stock  corporations  by  section  30  of  the  Stock  Corporation 
Law  because  of  the  failure  of  the  company  to  file  the  report  required 
by  that  statute.  The  trial  was  had  upon  the  issue  of  law  raised  by  a 
demurrer  of  the  plaintiff  to  the  second  defence  set  up  in  the  answer, 
and  the  defendants  had  judgment  with  leave  to  the  plaintiff  to  with- 
draw its  demurrer.  That  not  having  been  done,  final  judgment  was 
entered  dismissing  the  complaint.  The  appeal  is  from  this  judgment, 
and  the  notice  of  appeal  states  that  the  order  overruling  the  demurrer 
and  the  interlocutor}'  judgment  will  also  be  brought  up  for  review.  So 
far  as  the  order  is  concerned,  that  cannot  be  reviewed  because  it  is  not 
a  decision  from  which  an  appeal  can  be  taken.  That,  however,  is  a 
matter  of  no  importance  as  the  statement  in  the  notice  of  appeal  that 
the  interlocutory  judgment  will  be  brought  up  for  review  brings  the 
whole  case  before  us. 

The  Tenney  Company,  a  domestic  stock  corporation  organized  under 
the  laws  of  the  State  of  New  York,  was  on  the  25th  day  of  April,  1899, 
indebted  to  the  plaintiff  in  the  sum  of  $2,228.81,  being  the  balance  due 
for  goods  sold  to  it  by  the  plaintiff  between  the  13th  day  of  January, 
1898,  and  the  25th  of  April,  1899.  The  defendants  were  directors  of 
the  company  in  January,  1898,  and  so  continued  down  to  and  after  the 
1st  day  of  May,  1899.  No  report  of  the  condition  of  the  company 
such  as  is  required  by  section  30  of  the  Stock  Corporation  Law  was 
filed  either  in  January,  1898,  or  January,  1899.  None  of  the  defend- 
ants had  filed  the  certificate  required  by  the  statute  to  relieve  him  from 
the  liability  imposed  for  the  failure  of  the  company  to  file  the  report. 
The  debt  of  the  company  to  the  plaintiff  was  fully  due  on  the  26th  day 
of  April,  1899. 

These  facts  are  admitted  by  the  defence,  which  was  demurred  to. 
The  facts  set  up  in  that  defence  are  that  on  the  6th  day  of  June,  1899, 
the  Tenney  Company  was  adjudged  a  bankrupt  in  involuntary  proceed- 
ings brought  against  it  in  the  District  Court  of  the  United  States  for 
the  Southern  District  of  New  York ;  that  it  offered  terms  of  composi- 
tion to  its  creditors,  these  terms  being  the  payment  of  fifty  per  cent 
of  its  indebtedness,  ten  per  cent  in  cash  and  the  remainder  in  four  notes 
due  respectively  in  six,  nine,  twelve,  and  fifteen  months  from  the  date 
of  the  confirmation  of  the  composition  ;  that  the  composition  was  ac- 
ceptul  by  a  majority  of  the  creditors  of  the  corporation  and  was  con- 


SECT.  III.]  WOOD   &   SELICK   V.    VANDERVEER.  621 

firmed  on  the  12th  day  of  July,  1899,  and  that  the  Tenney  Company 
had  performed  all  the  terms  of  the  composition  on  its  part.  (The  de- 
fence also  alleged  that  the  debt  of  the  Tenney  Company  to  the  plaintiff 
was  provable  against  that  company  in  the  bankruptcy  proceedings  and 
was  one  from  which  it  could  have  been  discharged.)  The  defence  also 
contained  a  statement  that  no  portion  of  the  indebtedness  against  the 
Tenney  Company  alleged  in  the  complaint  was  at  the  time  of  the  com- 
mencement of  the  action  or  at  the  time  of  serving  the  answer  due  or 
unpaid. 

This  action  was  brought  on  the  14th  day  of  November,  1899,  while 
the  notes  given  upon  the  composition  agreement  were  still  outstanding, 
unpaid  and  not  due. 

The  defendants  claim  that  it  was  essential  to  the  right  of  the  plain- 
tiff to  maintain  this  action  that  there  should  be  a  debt  of  the  Tenney 
Company  due  and  actually  payable  by  them  at  the  time  the  action  was 
begun,  and  that  as  there  had  been  a  composition  as  to  the  debts  of  the 
company  including  the  one  to  the  plaintiff  and  the  notes  given  under 
the  composition  agreement  were  not  yet  due.  the  remedy  of  the  plain- 
tiff upon  that  debt  against  the  Tenney  Company,  was  suspended,  and 
this  action  cannot  be  maintained  until  these  notes  are  due. 

It  has  been  held  that  a  plaintiff  cannot  maintain  such  an  action  as 
this  unless  three  things  co-exist:  The  default  in  making  the  report; 
the  fact  that  the  defendants  were  trustees  ;  and  a  debt  due  from  the 
company.  Jones  v.  Barlow,  62  N.  Y.  202.  On  the  1st  day  of  June, 
1899,  all  these  things  existed,  and  at  that  time  the  plaintiff  had  a  com- 
plete cause  of  action  against  each  one  of  the  defendants  upon  which 
the  Statute  of  Limitations  had  begun  to  run.  The  debt  of  the  Tenney 
Company  to  the  plaintiff  which  lay  at  the  foundation  of  this  action 
has  never  been  paid,  and  the  only  question  is,  whether  the  steps  which 
have  been  taken  with  respect  to  it  in  the  bankruptcy  proceedings  have 
suspended  the  remedy  upon  it  so  that  the  right  of  action  of  the  plaintiff 
upon  it  is  postponed. 

The  composition  in  bankruptcy  was  confirmed  on  the  12th  of  July, 
1899.  The  effect  of  that  confirmation  is  prescribed  by  section  14  of 
the  Bankruptcy  Act,  which  provides  that  the  confirmation  of  a  com- 
position shall  discharge  the  bankrupt  from  his  debts  other  than  those 
agreed  to  be  paid  by  the  composition  and  those  not  affected  by  the  dis- 
charge. The  original  debt  of  the  company  to  the  plaintiff  came  within 
the  provisions  of  section  14  of  the  Bankruptc}'  Act.  This  debt  having 
been  discharged,  the  bankrupt  was  relieved  from  further  liability  with 
respect  to  it  to  Wood  &  Selick.  What  might  be  the  result  of  a  failure  to 
pay  any  of  the  notes  agreed  to  be  paid  by  the  composition  it  is  not  neces- 
sary to  consider  because  it  is  alleged  that  the  composition  has  been 
performed  and  the  rights  of  the  parties  are,  therefore,  controlled  by 
section  14  of  the  Bankruptcy  Act,  quoted  above.  It  is  to  be  noticed 
that  this  act  differs  from  that  of  1867,  as  amended  in  1874,  because  this 
one  contains  an  express  provision  that  a  confirmation  of  a  composition 


622  WOOD   &   SELICK    V.   VANDERVEER.  [CHAP.  VIII. 

shall  work  a  discharge  of  all  of  the  debts  of  the  bankrupt.  That  con- 
dition was  not  contained  in  the  former  law.  Therefore,  when  that 
composition  had  been  confirmed  the  original  debt  of  the  Tenney  Com- 
pany ceased  to  exist.  It  is  not  a  case  of  a  suspension  of  a  remecty,  but 
an  absolute  discharge  of  the  debt.  There  never  can  be  any  remedy 
upon  the  original  debt.  The  remedy  of  a  creditor  against  the  Tenney 
Compan}'  was  to  have  pa3'inent  of  the  composition  notes,  but  when 
those  notes  were  paid  there  still  arose  no  remedy  upon  this  original 
debt.  So  far  as  the  creditor  was  concerned  he  had  after  that  time  no 
right  whatever  against  the  Tenney  Company  by  reason  of  the  existence 
of  the  debt  which  it  is  sought  here  to  recover. 

But  the  fact  that  there  can  be  no  recovery  from  the  Tenney  Company 
makes  no  difference  with  regard  to  the  liability  of  these  defendants.  The 
statute  does  not  require  as  a  prerequisite  to  maintain  this  action  against 
these  defendants  that  a  judgment  shall  have  been  recovered  against  the 
original  debtor.  The  sole  reason  why  the  debt  from  the  company  must 
be  past  due  before  this  action  can  be  maintained  is  that  the  liability  of 
the  directors  is  secondary  in  its  nature,  and  does  not  come  to  exist  until 
the  company  has  made  default.  Until  the  debt  is  due  there  is  a  pre- 
sumption that  it  will  be  paid  b}-  the  company  which  owes  it,  and  until 
that  presumption  has  been  overthrown  by  the  failure  of  the  company  to 
pay  the  debt  there  is  no  reason  to  proceed  against  the  directors.  But 
when  that  failure  becomes  a  fact  then  this  remedy  comes  to  exist. 

This  debt  of  the  company  has  never  been  paid,  although  the  right  to 
recover  from  the  corporation  has  been  taken  away  by  operation  of  law. 
Does  the  taking  away  of  that  right  affect  the  rights  of  the  plaintiff  to 
recover  from  the  directors  who  are  also  liable  for  the  debt? 

That  depends  somewhat  upon  the  nature  of  the  liability  of  these 
directors.  In  a  case  arising  under  a  like  statute  in  Massachusetts  it 
was  held  that  the  liability  of  a  director  was  in  the  nature  of  a  surety- 
ship or  guaranty  for  the  original  debt,  and  that,  although  the  corpora- 
tion had  been  discharged,  the  liability  of  the  directors  was  not  affected, 
because  the  statute  provides  that  the  discharge  shall  affect  only  the  per- 
sonal obligation  of  the  bankrupt,  and  shall  not  in  any  manner  affect  the 
liability  of  one  who  is  a  co-debtor  with,  or  guarantor,  or  in  any  manner 
a  suret}-  for  the  bankrupt.  Bankruptcy  Act,  §  16  ;  Matter  of  Marshall 
Paper  Co.,  95  Fed.  Rep.  419  ;  s.  c.,  102  Fed.  Rep.  872  ;  Hill  v.  Harding, 
103  U.  S.  699.  So  that  by  the  express  provisions  of  the  statute  which 
works  the  discharge  the  plaintiff  lost  no  rights  against  those  directors 
if  their  liability  is  in  the  nature  of  a  suretyship. 

But  it  may  be  said  with  some  plausibility  that  their  liability  is  in  the 
nature  of  a  penalty,  and  so  the  courts  have  held  that  it  is  barred  within 
three  years  under  the  provisions  of  subdivision  3  of  section  383  of  the 
Code  of  Civil  Procedure  as  an  action  upon  a  statute  for  a  penalty  or  a 
forfeiture.  But  if  that  be  true  and  this  be  a  penal  action  the  discharge 
of  the  corporation  from  the  debt  without  its  payment  has  no  effect  upon 
the  right  of  the  plaintiff  to  recover  from  these  defendants.  This  cause 


SECT.  III.]  WOOD   &  SELICK   V.  VANDERVEEB.  623 

of  action  is  created  by  the  statute.  It  is  operative  when  the  debt  be- 
comes payable,  and  regarding  it  as  a  penal  action  the  amount  of  the 
debt  is  simply  the  measure  of  damages  which  the  plaintiff  is  entitled 
to  recover  because  of  the  liability  imposed  upon  these  persons  by  the 
law. 

After  the  debt  has  become  due,  the  creditors  are  not  limited  to  an 
action  against  the  corporation  to  recover  it,  nor  is  it  necessary  that 
the}'  should  begin  such  an  action  unless  they  see  fit  to  do  so.  They  can 
at  once  proceed  against  the  directors,  and  can  only  be  barred  from  that 
action  by  the  payment  of  the  debt  by  the  corporation.  Indeed,  no 
reason  is  seen  wh}'  they  may  not  at  the  same  time  maintain  an  action 
against  the  corporation  upon  its  contract  liability,  and  another  against 
the  directors  for  their  statute  liability,  although  undoubtedly  if  judg- 
ment were  recovered  in  both  actions  the  payment  of  one  would  work  a 
satisfaction  of  the  other.  But  the  second  action  is  entirely  separate, 
and  has  no  connection  with  the  other ;  and  as  the  defendants  here  were 
not  parties  to  the  bankruptcy  proceedings,  and  their  liability  was  not  in 
any  way  questioned  in  these  proceedings,  it  is  clear  that  the  discharge 
of  the  bankrupt,  which  affected  it  only  and  was  personal  to  it  alone, 
can  have  no  effect  whatever  upon  the  right  of  the  plaintiff  to  recover 
against  another  person  whose  liability  for  this  debt  is  created  by  statute, 
and  is  entirely  independent  and  separate  from  the  cause  of  action  against 
the  company. 

For  these  reasons  we  think  that  the  conclusion  of  the  learned  justice 
in  the  court  below  was  not  correct,  and  both  the  final  judgment  and 
the  interlocutory  judgment  must  be  reversed,  with  costs,  and  the  de- 
murer sustained,  with  costs  in  this  court  and  in  the  court  below,  with 
'  leave  to  the  defendants  to  amend  their  answer  in  twenty  days  on  pay- 
ment of  such  costs. 

PATTERSON,  INGRAHAM,  and  HATCH,  JJ.,  concurred  ;  VAN  BRUNT,  P.  J., 
dissented. 

VAN  BRUNT,  P.  J.  (dissenting).  If  the  trustee  paid  the  debt  he  would 
have  the  right  to  be  subrogated  to  the  plaintiff  in  his  claim  against  the 
company  which  is  the  foundation  of  the  recovery.  In  the  case  at  bar 
there  is  no  debt  which  can  presently  be  enforced  against  the  company. 

I  dissent  therefore. 

Judgment  reversed,  with  costs,  and  demurrer  sustained,  with  costs  in 
this  court  and  in  the  court  below,  with  leave  to  defendants  to  amend 
answer  in  twenty  days  on  payment  of  such  costs.1 

1  Mohr  v.  Miunesota  Elevator  Co.,  40  Minn.  343,  contra. 


624  BOYNTON   V.   BALL.  [cHAP.  VIIL 


BOYNTON   v.   BALL. 
SUPREME  COURT  OP  THE  UNITED  STATES,  APRIL  4-25,  1887. 

[Reported  in  121  United  States,  457.] 

MR.  JUSTICE  MILLER  delivered  the  opinion  of  the  court. 

This  is  a  writ  of  error  to  the  Supreme  Court  of  the  State  of  Illinois. 
The  question  of  federal  law,  which  gives  jurisdiction  to  this  court  to 
review  the  judgment  of  the  State  court,  arises  out  of  the  refusal  of 
that  court  to  give  effect  to  a  certificate  of  discharge  in  bankruptcy  to 
Boynton,  the  plaintiff  in  error. 

Ball,  the  defendant  in  error,  brought  suit  against  Boynton  in  the 
Circuit  Court  of  the  State  of  Illinois  for  Stephenson  County,  on  April 
16,  1877.  To  this  Boynton  filed  his  answer  April  4,  1878,  and  judg- 
ment was  rendered  against  him  on  December  9,  1879,  for  $6,223.99 
debt,  and  $5,234.99  damages  and  costs.  Pending  this  suit  in  the  State 
court  Boynton,  on  his  own  application,  was  declared  a  bankrupt  April 
15,  1878,  and  received  his  discharge  from  all  his  debts,  December  23, 
1880.  An  execution  on  the  judgment  against  Boynton  in  the  State 
court  was  issued  February  21,  1880,  and  returned  unsatisfied.  On 
March  25,  1881,  Boynton  filed  a  petition  in  the  State  court,  asking  for 
a  perpetual  stay  of  execution  on  the  judgment  rendered  in  favor  of 
Ball,  and  filed  a  certified  copy  of  his  discharge  in  bankruptcy,  together 
with  certain  affidavits.  Ball  was  served  with  notice  of  this  motion 
and  appeared  and  made  defence.  The  motion  was  overruled  by  the 
Circuit  Court,  from  which  ruling  Boynton  appealed  to  the  Supreme 
Court  of  the  State,  which  court  affirmed  the  judgment  of  the  court 
below  with  costs.  105  111.  627. 

The  question  presented  for  us  to  consider  is,  whether  the  discharge 
in  bankruptcy  was,  under  the  circumstances  of  this  case,  a  discharge 
from  the  judgment  rendered  in  the  Circuit  Court  of  Stephenson  County 
while  the  proceedings  in  bankruptcy  were  pending.  It  will  be  perceived 
that  the  suit  in  the  State  court  was  commenced  before  the  proceedings 
in  bankruptcy  in  which  the  discharge  was  finally  granted.  It  will  also 
be  perceived  that  the  case  lingered  in  the  State  court  from  April  16, 
1877,  until  December  9,  1879,  when  the  final  judgment  was  rendered,  a 
period  of  over  two  years,  but  that  the  plaintiff  in  error  did  not  obtain 
his  final  discharge  in  bankruptcy  until  December  23,  1880,  which  was 
more  than  a  year  after  the  judgment  was  obtained  against  him  in  the 
State  court. 

In  Dimock  v.  The  Revere  Copper  Co.,  117  U.  S.  559,  decided  at  the  last 
term  of  this  court,  a  case  very  similar  to  this  was  presented  to  us  for  our 
consideration.  Dimock,  being  sued  in  the  State  court  of  Massachusetts, 
made  defence,  and  pending  the  action  was  discharged  from  all  his  debts 
under  bankruptcy  proceedings,  receiving  his  certificate  of  discharge  as 


SECT.  III.]  BOYNTON   V.   BALL.  625 

a  bankrupt  a  few  days  before  final  judgment  against  him  in  the  State 
court.  Notwithstanding  he  had  this  discharge  at  the  t^me  the  judg- 
ment was  rendered  against  him  in  the  State  court,  he  did  not  plead  it 
in  bar  of  that  action  nor  bring  it  in  any  manner  to  the  attention  of  the 
court.  He  was  afterwards  sued  upon  this  judgment  in  the  Supreme 
Court  of  the  State  of  New  York,  and  there  pleaded  his  discharge  in 
bankruptcy  in  bar  of  the  action.  That  court,  however,  held  the  certificate 
of  discharge  not  to  be  a  bar,  and  rendered  judgment  against  him.  This 
judgment  was  reversed  in  the  Supreme  Court,  in  General  Term,  and 
that  judgment  was  in  turn  reversed  by  the  Court  of  Appeals,  which 
restored  the  judgment  of  the  court  in  Special  Term.  This  court,  in 
reviewing  that  judgment,  said  that  the  Superior  Court  of  Massachusetts, 
in  which  the  first  suit  was  brought,  had  jurisdiction  of  the  case,  which 
was  rendered  complete  by  the  service  of  process  and  the  appearance  of 
the  defendant ;  that  nothing  that  was  done  in  the  bankruptcy  court 
had  ousted  the  jurisdiction  of  that  court,  which,  accordingly,  proceeded 
in  due  order  to  judgment;  that  this  judgment  having  been  rendered 
after  the  certificate  of  discharge  in  bankruptcy  which  had  not  been 
called  to  the  attention  of  the  court  in  an}-  manner,  nor  any  staj'  of  pro- 
ceedings in  the  State  court  asked  on  account  of  the  pendency  of  the 
bankruptcy  proceedings,  the  question  before  the  Massachusetts  court 
for  decision  at  the  time  it  rendered  judgment  was,  whether  Dimock  was 
then  indebted  to  the  Revere  Copper  Company,  and  we  held  that  it  had 
jurisdiction  and  rightfully  rendered  judgment  on  this  question  in  favor 
of  that  company,  notwithstanding  the  proceedings  in  the  bankruptcy 
court  of  which  it  could  take  judicial  notice.  This  decision  was  sup- 
ported by  references  to  cases  heretofore  decided  involving  similar 
questions  in  this  court  and  in  the  courts  of  the  States.1 

The  principle  on  which  the  case  was  decided  was  that,  while  the 
discharge  in  bankruptcy  would  have  been  a  valid  defence  to  the  suit  if 
pleaded  at  or  before  the  time  of  judgment  was  rendered  in  the  Massa- 
chusetts court,  it  had  in  that  respect  no  more  sanctity  or  effect  in 
relieving  Dimock  of  his  debt  to  the  company  than  a  payment,  or  a 
receipt,  or  a  release,  of  which  he  was  bound  to  avail  himself  by  plea 
or  suggestion  of  some  kind  as  a  defence  to  the  action  in  proper  time  ; 
that,  showing  no  good  reason  why  he  should  not  have  presented  that 
discharge,  and  permitting  the  judgment  to  go  against  him  in  the  Massa- 
chusetts court,  without  an  attempt  to  avail  himself  of  it  there,  the 
judgment  of  that  court  was  conclusive  on  the  question  of  his  indebted- 
ness at  that  time  to  the  copper  company.  That  case,  so  parallel  in  its 
circumstances  to  the  one  now  before  us,  would  be  conclusive  of  the 
latter  if  Boynton  had  had  his  certificate  of  discharge,  or  if  the  order 
for  it  had  been  made  by  the  bankruptcy  court  before  the  judgment  in 
the  State  court.  But,  as  we  have  already  seen,  the  judgment  in  the 

1  fleTooker,  14  B.  U.  35;   Bradford  v.  Rice,  102  Mass.  472;  Hollistcr  r.  Al.l.-nt, 
31  N.  H.  442 ;  Whyte  ».  McGovern,  51  N.  J.  L.  356;  Steward  v.  Green,  11  Paige,  535 
Miller  v.  Clements,  54  Tex.  351,  ace. 


626  BOYNTON   V.   BALL.  [CHAP.  VIIL 

State  court  was  rendered  more  than  a  year  before  the  order  of  dis- 
charge in  the  bankruptcy  court,  and  Boynton  therefore  had  no  oppor- 
tunity to  plead  a  discharge  which  had  not  then  been  granted,  as  a 
defence  to  that  action. 

Two  propositions  are  advanced  by  counsel  for  the  defendant  in  error, 
in  support  of  the  judgment  of  the  Supreme  Court  of  Illinois,  as  reasons 
why  the  certificate  obtained  so  long  after  the  judgment  in  the  State 
court  should  not  have  the  effect  of  a  discharge  of  the  debt  evidenced 
by  that  judgment.  The  first  of  these  is,  that  the  original  debt  on  which 
the  action  was  brought  in  the  Circuit  Court  of  Stephenson  County  no 
longer  exists,  but  that  it  was  merged  in  the  judgment  of  that  court 
against  Boynton,  and  was  therefore  not  released  under  the  act  of  Con- 
gress, which  declares  that  all  debts  provable  against  the  estate  of  the 
bankrupt  at  the  time  bankruptcy  proceedings  were  initiated  shall  be 
satisfied  by  the  order  of  the  court  discharging  the  bankrupt.  The  argu- 
ment is,  that  the  judgment  now  existing  against  Boynton  is  not  the 
debt  that  existed  at  the  time  bankruptcy  proceedings  were  initiated ; 
that  by  the  change  of  the  character  of  the  debt  from  an  ordinary  claim 
or  obligation  to  a  judgment  of  a  court  of  record  it  ceased  to  be  the 
same  debt  and  became  a  new  and  different  debt  as  of  the  date  of  the 
judgment.  Some  authorities  are  cited  for  this  general  proposition  of 
a  change  of  the  character  of  the  debt  by  merger  into  the  judgment, 
and  some  authorities  are  also  cited  by  counsel  for  plaintiff  in  error 
to  the  contrary.  See  Judge  Blatchford,  In  re  Brown,  5  Ben.  1 ;  In  re 
Rosey,  6  Ben.'  507. 

But  this  court,  to  which  this  precise  question  is  now  presented  for 
the  first  time,  is  clearly  of  opinion  that  the  debt  on  which  this  judgment 
was  rendered  is  the  same  debt  that  it  was  before  ;  that,  notwithstand- 
ing the  change  in  its  form  from  that  of  a  simple  contract  debt,  or  un- 
liquidated claim,  or  whatever  its  character  may  have  been,  by  merger 
into  a  judgment  of  a  court  of  record,  it  still  remains  the  same  debt  on 
which  the  action  was  brought  in  the  State  court  and  the  existence  of 
which  was  provable  in  bankruptcy. 

The  next  proposition  is,  that  under  section  5,106  of  the  Revised 
Statutes  of  the  United  States  it  was  the  duty  of  Boj-nton  to  make  appli- 
cation to  the  State  court,  before  judgment  in  that  court,  to  have  the 
proceedings  there  stayed,  to  await  the  determination  of  the  court  in 
bankruptcy  on  the  question  of  his  discharge.  That  section  is  in  the 
following  language :  — 

"  No  creditor  whose  debt  is  provable  shall  be  allowed  to  prosecute 
to  final  judgment  any  suit  at  law  or  in  equity  therefor  against  the 
bankrupt,  until  the  question  of  the  debtor's  discharge  shall  have  been 
determined  ;  and  any  such  suit  or  proceedings  shall,  upon  the  applica- 
tion of  the  bankrupt,  be  stayed  to  await  the  determination  of  the  court 
in  bankruptc}'  on  the  question  of  the  discharge,  provided  there  is  no 
unreasonable  delay  on  the  part  of  the  bankrupt  in  endeavoring  to  ob- 
tain his  discharge ;  and  provided,  also,  that  if  the  amount  due  the 


SECT.  III.]  BOYNTON   V.    BALL.  627 

creditor  is  in  dispute,  the  suit,  by  leave  of  the  court  in  bankruptcy, 
may  proceed  to  judgment  for  the  purpose  of  ascertaining  the  amount 
due,  which  amount  may  be  proved  in  bankruptcy,  but  execution  shall 
be  stayed." 

This  cannot  be  construed  to  mean  anything  more  than  that  where 
the  bankruptcy  proceedings  are  brought  to  the  attention  of  the  court  in 
which  a  suit  is  being  prosecuted  against  a  bankrupt,  that  court  shall 
not  proceed  to  final  judgment  until  the  question  of  his  discharge  shall 
have  been  determined.  The  State  court  could  not  know  or  take  judi- 
cial notice  of  the  proceedings  in  bankruptcy  unless  they  were  brought 
before  it  in  some  appropriate  manner,  and  the  provisions  of  this  section 
show  plainly  that  it  does  not  thereupon  lose  jurisdiction  of  the  case, 
but  the  proceedings  may,  upon  the  application  of  the  bankrupt,  be 
stayed  to  await  the  determination  of  the  court  in  bankruptcy  on  the 
question  of  his  discharge.  Even  the  direction  that  it  shall  be  stayed 
is  coupled  with  a  condition  that  "there  is  no  unreasonable  delay  on  the 
part  of  the  bankrupt  in  endeavoring  to  obtain  his  discharge ; "  and 
with  the  further  provision  that  "if  the  amount  due  the  creditor  is  in 
dispute,  the  suit,  by  leave  of  the  court  in  bankrupUr,  may  proceed  to 
judgment  for  the  purpose  of  ascertaining  the  amount  due." 

These  provisions  exclude  altogether  the  idea  that  the  State  court  has  fl* 
lost  jurisdiction  of  the  case,  even  when  the  bankrupt  shall  have  made  ^  & 
application  showing  the  proceedings  against  him.     The  whole  section  //  '< 
is  also  clearly  impressed  with  the  idea  that  this  is  a  provision  primarily 
for  the  benefit  of  the  bankrupt,  that  he  may  be  enabled  to  avoid  being  <y 
harassed  in  both  courts  at  the  same  time  with  regard  to  such  debt.     It  Jf" 
is  therefore  a  right  which  he  may  waive.     He  may  be  willing  that  the    \ri» 
suit  shall  proceed  in  the  State  court  for  many  reasons;  first,  because  ./'/  (j 
he  is  not  sure  that  he  will  ever  obtain  his  discharge  from  the  court  in 
bankruptc}',  in  which  case  it  would  do  him  no  good  to  delay  the  pro-  [ 
ceedings  at  his  expense  in  the  State  court ;  in  the  second  place,  he  may  i  jLr^ 
have  a  defence  in  the  State  court  which  he  is  quite  willing  to  rely  upon  > 
there,  and  to  have  the  issue  tried ;  in  the  third  place,  he  may  be  very  ( 
willing  to  have  the  amount  in  dispute  liquidated  in  that  proceeding,  in 
which  case  it  becomes  a  debt  to  be  paid  pro  rata  with  his  other  debts-^ 
by  the  assignee  in  bankruptcy. 

Jf  for  any  of  these  reasons,  or  for  others,  he  permits  the  case  to 
proceed  to  judgment  in  the  State  court,  by  failing  to  procure  a  stay  of 
proceedings  under  the  provisions  of  this  section  of  the  bankrupt  law, 
or  the  assignee  in  bankruptcy  does  not  intervene,  as  he  may  do,  Hill  v. 
Harding,  107  U.  S.  631,  he  does  not  thereby  forfeit  his  right  to  plead 
his  final  discharge  in  bankruptcy,  if  he  shall  obtain  it,  at  any  appropri- 
ate stage  of  the  proceedings  against  hfm  in  the  State  court.  And  if, 
as  in  the  present  case,  his  final  discharge  is  not  obtained  until  after 
judgment  has  been  rendered  against  him  in  the  State  court,  he  may 
produce  that  discharge  to  the  State  court  and  obtain  the  stay  of  execu' 
tion  which  he  asks  for  now.  See  McDougald  v.  Reid,  5  Ala.  810. 


628  BOYNTON   V.   BALL.  [CHAP.  VIII. 

In  Rogers  v.  The  Western  Marine  and  Fire  Ins.  Co.,  1  La.  Ann. 
161,  the  court,  in  a  similar  case,  says :  "The  proposition  that  Rogers 
should  have  pleaded  the  pendency  of  the  bankrupt  proceedings  in  the 
original  suit,  and  cannot  disturb  the  execution  of  the  judgment  which 
is  final,  is  untenable.  The  discharge  in  bankruptcy  was  posterior  to 
the  rendition  of  this  judgment,  and  operated  with  the  same  force  upon 
the  debt  after  it  assumed  the  form  of  a  judgment  as  it  would  have 
done  had  the  debt  remained  in  its  original  form  of  a  promissory 
note." 

These  and  many  other  decisions  under  the  bankrupt  law  of  1841  are 
to  be  found  in  the  brief  of  the  plaintiff  in  error.  The  same  principle  is 
decided  in  Cornell  v.  Dakin,  38  N.  Y.  253,  and  in  several  cases  in  the 
District  and  Circuit  Courts  of  the  United  States.  There  is  a  very  able 
review  of  the  subject  by  Judge  Hillyer  of  the  United  States  District 
Court  of  Nevada,  in  the  case  of  Stansfield,  reported  in  4  Sawyer,  334. 

The  same  thing  was  held  by  the  Court  of  Appeals  of  New  York,  in 
Palmer  v.  Hussey,  87  N.  Y.  303,  310,  which  was  affirmed  in  this  court 
on  writ  of  error  in  Palmer  v.  Hussey,  119  U.  S.  96. 

It  follows  from  these  considerations  that 

The  Supreme  Court  of  Illinois  was  in  error  in  failing  to  give 
due  effect  to  Boynton's  discharge  in  bankruptcy,  and  its  judg- 
ment is  reversed,  and  the  case  is  remanded  to  that  court  for 
further  proceedings  in  accordance  with  this  opinion.1 

1  "  The  early  English  practice  gave  the  creditor  an  election  to  prove  in  bankruptcy 
or  prosecute  his  action ;  and  if  he  obtained  judgment  and  execution,  he  could  dispute 
the  validity  of  the  proceedings  in  bankruptcy  by  seizing  the  property  in  the  hands  of 
the  assignees,  —  a  practice  which  led  to  a  vast  amount  of  litigation  and  uncertainty. 
He  might,  instead  of  seizing  property,  take  the  debtor  in  execution.  But  it  was  en- 
acted, as  early  as  1730,  that  if  a  creditor  did  obtain  such  a  judgment  and  take  the 
debtor  in  execution,  or  detain  him  in  prison,  after  he  had  received  his  certificate,  he 
should  be  discharged  on  motion.  Stat.  5  Geo.  II.  ch.  30,  §  13.  And  this  was  con- 
tinued in  force  until  1869.  The  English  practice  has  had  an  undue  weight  in  some  of 
the  decisions  in  this  country.  See  the  arguments  in  Dresser  v.  Brooks,  3  Barb.  429. 
The  law  was  so  in  England ;  but  it  was  the  statute  itself  which  provided  for  the  case, 
and  not  any  general  rule  in  bankruptcy.  It  is  easy  to  see,  by  studying  the  English 
cases,  that  this  practice  was  established  by  statute  to  meet  the  very  difficulty  which 
our  statute  meets  by  granting  a  stay  of  actions  until  the  question  of  discharge  is 
determined.  The  statute  of  1869  will  work  an  entire  change  of  the  practice  in  Eng- 
land, and  bring  it  to  the  true  position.  It  gives  the  court  of  bankruptcy  full  power  to 
stay  actions ;  and  no  summary  motion  will  hereafter  be  made,  nor  any  judgment  be 
obtained  in  that  country,  excepting  such  as  will  not  be  discharged  by  the  certificate." 
Re  Gallison,  2  Low.  72,  74.  The  English  Act  of  1883,  section  10  (2),  gives  the  bank- 
ruptcy court  power  to  stay  any  action,  execution,  or  other  legal  process  against  the 
bankrupt  at  any  time  after  the  presentation  of  a  bankruptcy  petition. 

Under  the  United  States  Acts  of  1841  and  1867  the  law  was  in  conflict  prior  to 
the  decision  of  Boynton  v.  Ball.  In  accord  with  that  decision  were  Re  Brown,  5  Ben. 
1 ;  Anderson  v.  Anderson,  65  Ga.  518  (con/.  Adams  v.  Dickson,  72  Ga.  846) ;  Rogers 
v.  Western  Ins.  Co.,  1  La.  Ann.  161 ;  McDonald  v.  Ingraham,  30  Miss.  389;  Dresser 
v.  Brooks,  3  Barb.  429 ;  Fox  v.  Woodruff,  9  Barb.  498 ;  Johnson  v.  Fitzhugh,  3  Barb. 
Ch.  360;  Clark  v.  Rowling,  3  N.  Y.  216;  McDonald  v.  Davis,  105  N.  Y.  508;  Dawson 
v.  Hartsfield,  79  N.  C.  334 ;  Dick  v.  Powell,  2  Swan,  632 ;  Stratton  v.  Perry,  2  Tenn. 


SECT.  III.]  KINMOUTH   V.   BRAEUTIGAM.  629 


KINMOUTH  v.  BRAEUTIGAM. 
SUPREME  COURT  OF  NEW  JERSEY,  JUNE  12,  1900. 

[Reported  in  46  Atlantic  Reporter,  769.] 

THIS  action  was  begun  on  October  29,  1898.  A  voluntary  petition 
in  bankruptcy  was  filed  by  the  defendant  on  November  23,  1898.  The 
plaintiff  recovered  judgment  on  December  27,  1898,  and  on  January 
12,  1899,  the  plaintiff  was  adjudicated  a  bankrupt.  The  plaintiff  now 
moved  to  vacate  the  judgment.  ' 

COLLINS,  J.  This  motion  was  heard  by  me  in  vacation,  under  sec- 
tion 295  of  the  practice  act.  It  involves  the  interpretation  of  the  fol- 
lowing provisions  of  the  United  States  bankrupt  act  of  1898,  viz. : 

[The  court  here  quoted  section  1  (1)  and  section  67/'.] 

It  is  argued  on  behalf  of  the  motion  that  the  words,  "  at  any  time 
within  four  months  prior  to  the  filing  of  a  petition  in  bankruptcy," 
mean  at  any  time  after  a  date  that  is  four  months  prior  to  the  filing  of 
the  petition,  even  although  the  lien  is  obtained  subsequent  to  such 
filing.  I  cannot  assent  to  this  construction.  The  words  are  perfectly 
plain,  and  have  no  inclusion  of  a  judgment  obtained  after  the  filing  of 
the  petition.  The  way  to  prevent  judgment  in  a  pending  action  is  to 
stay  the  suit  until  the  adjudication  in  bankruptcy,  and  a  sufficient  time 
afterwards  to  afford  opportunity  to  obtain  and  plead  a  discharge.  Pos- 
sibly, if  default  be  made,  the  court  will,  upon  discharge  being  granted, 
open  the  judgment  in  order  to  allow  it  to  be  pleaded ;  but  it  will  not 
vacate  a  judgment  regularby  obtained,  because  of  the  possibility  of 
a  subsequent  discharge.  It  should  be  added  that  the  avoiding  of  a 
judgment,  under  the  quoted  provision,  is  not  matter  of  right.  Judicial 

Ch.  633 ;  Harrington  v.  McNaughton,  20  Vt.  293 ;  Stockwell  v.  Woodward,  52  Vt. 
228,  234.  See  also  Imlay  v.  Carpentier,  14  Cal.  173;  Betts  v.  Bagley,  12  Pick.  572; 
Wyman  v.  Mitchell,  1  Cow.  316.  Contrary  decisions  were  /?«  Galliaon,  2  Low.  72; 
Re  Williams,  2  B.  R.  229;  Re  Crawford,  3  B.  H.  698;  Re  Mansfield,  6  B.  H.  388; 
Roden  v.  Jaco,  17  Ala.  344  (conf.  Trimble  v.  Williamson,  49  Ala.  525,  528) ;  Steadman 
v.  Lee,  61  Ga.  58;  (<"onf.  Anderson  v.  Anderson,  65  Ga.  518;  Adams  v.  Dickson,  72 
Ga.  846);  Boynton  v.  Ball,  105  III.  627;  Bowen  r.  Eichel,  91  Ind.  22;  Hnl brook  i>. 
Foss,  27  Me.  441;  Pike  v.  McDonald,  32  Me.  418;  Uran  v.  Houdlette,  36  Me.  15; 
Palmer  u.  Merrill,  57  Me.  26;  Woodbury  v.  Perkins,  5  Cnsb.  86;  Bradford  v.  Rice, 
102  Mass.  472 ;  Cutter  v.  Evans,  115  Mass.  27  ;  McCarthy  v.  Goodwin,  8  Mo.  App.  380; 
Kellogg  v.  Schuyler,  2  Denio,  73;  Wise's  Appeal,  99  Pa.  193. 

The  decision  of  Boynton  v.  Ball  fixed  the  law,  and  it  has  been  followed  in  lit, 
Marshall  Paper  Co.,  95  Fed.  Rep.  419.  424;  Tefft  ».  Knox.  37  Kan.  37 ;  Pine  Hill 
Coal  Co.  v.  Harris  Co.,  86  Ky.  421  ;  Huntington  r.  Samulerx,  166  Mass.  92;  Williiinm 
v.  Humphreys,  50  N.  J.  L.  500;  Whyte  v.  McGovern,  51  N.  J.  L.  356;  Locheimor  v. 
Stewart,  91  Tenn.  385 ;  Courtney  v.  Beale,  84  Va.  692 ;  Zumbro  v.  Stump,  38  W.  Va. 
325. 

Section  63  (5)  of  the  Act  of  1898  is  evidently  intended  to  prevent  any  question  as 
to  what  judgments  recovered  after  bankruptcy  are  provable  and  discharged.  See  R* 
Marshall  Paper  Co.,  95  Fed.  Rep.  419,  424. 


630  HENNEQUIN   V.    CLEWS.  [CHAP.  VIIL 

discretion  is  to  be  invoked,  and  the  trustee  in  bankruptcy  has  a  right 
to  be  heard.  It  may  be,  further,  that  the  administering  of  the  relief 
to  be  accorded  is  exclusively  with  the  federal  court  having  cognizance 
of  the  bankruptcy  proceeding,  and  that  that  court,  not  the  court  in. 
which  judgment  is  rendered,  is  the  one  to  "  deem"  the  judgment  null 
and  void,  or  preserve  it  for  the  trustee.  The  motion  is  denied,  with, 
costs. 


HENNEQUIN  v.  CLEWS. 
SUPREME  COURT  OF  THE  UNITED   STATES,  MARCH  13-MAY  15,   1884. 

[Reported  in  111  United  States,  676.] 

IN  October,  1871,  Henry  Clews  &  Co.  opened  a  line  of  credit  on 
their  London  house  of  Clews,  Habicht  &  Co.,  for  £6,000  in  favor  of 
Hennequin  &  Co.,  a  firm  doing  business  in  New  York  and  Paris, 
authorizing  the  latter  to  draw  from  time  to  time  bills  of  exchange  on 
the  London  house  at  ninety  days  from  date,  with  the  privilege  of  re- 
newal, it  being  agreed  that  Hennequin  &  Co.  should  remit  to  Clewsr 
Habicht  &  Co.,  a  few  days  before  the  maturity  of  each  bill,  the  neces- 
sary funds  to  meet  and  pay  the  same,  so  that  Clews,  Habicht  &  Co. 
should  not  have  to  advance  any  money  to  pay  it.  In  consideration  of 
such  accommodation  acceptances,  Hennequin  &  Co.  deposited  with 
Clews  &  Co.  certain  collateral  securities,  for  the  purpose  of  securing 
them,  in  case  Hennequin  &  Co.  failed  to  remit  the  requisite  funds 
to  pay  the  said  bills  of  exchange,  amongst  which  collaterals  were 
twentj'-nine  Toledo  railroad  mortgage  bonds,  for  £1,000  each. 
Clews  &  Co.  used  the  said  bonds  by  depositing  them  with  third  parties 
as  collateral  security  to  raise  money  for  their  own  purposes,  although 
not  called  upon  to  make  any  advances  to  pay  the  bills  of  Hennequin  & 
Co.,  all  of  which  were  protected  and  paid  according  to  agreement. 
After  the  bills  were  all  retired,  Hennequin  &  Co.  demanded  a  return  of 
the  collaterals  ;  but  Clews  &  Co.  having  failed  in  business,  did  not 
return  them.  Thereupon,  to  recover  the  bonds,  or  their  value,  and 
damages,  this  suit  was  brought  in  the  Superior  Court  of  New  York 
City  by  Hennequin  &  Co.  against  Clews  &  Co.  and  the  parties  with 
whom  they  had  deposited  the  bonds.  The  suit  was  dismissed  as  to 
the  latter  parties,  and  Clews  &  Co.,  amongst  other  things,  pleaded  that 
on  the  18th  of  November,  1874,  they  were  adjudged  bankrupts  under 
the  laws  of  the  United  States,  and  that  a  trustee  was  appointed,  who 
succeeded  to  all  their  interest  in  said  securities  ;  and  by  a  supplemental 
answer,  filed  afterward,  they  pleaded  their  discharge  in  bankruptcy. 
The  following  is  a  copy  of  the  substantial  part  of  this  answer,  namely  r 

"The  supplemental  answer  as  amended  of  the  defendants  Henry 
Clews  and  Theodore  S.  Fowler  to  the  complaint  in  this  action,  served 


SECT.  III.]  HENNEQUIN   V.   CLEWS.  631 

by  leave  of  the  court  first  had  and  obtained,  shows  to  the  court  that 
subsequent  to  the  service  of  the  original  answer  herein,  in  pursuance 
of  the  bankruptcy  proceedings  mentioned  in  said  answer  and  the  order 
of  the  court  of  bankruptcy,  the  District  Court  of  the  United  States  for 
the  Southern  District  of  New  York,  sitting  as  a  court  of  bankruptcy, 
did  make  an  order  and  grant  to  said  defendants  certificates  of  dis- 
charge under  seal  of  said  court  on  the  24th  day  of  December,  1875, 
discharging  the  above-named  defendants  and  each  of  them  from  all 
debts  and  claims  which  by  the  Revised  Statutes,  title  Bankruptcy,  are 
made  provable  against  the  estate  of  said  defendants  which  existed  on 
the  18th  day  of  November,  1874,  excepting  such  debts,  if  any,  as  are 
by  said  law  excepted  from  the  operation  of  a  discharge  in  bank- 
ruptcy. .  .  .  And  the  defendants  further  allege  that  the  claim  and 
indebtedness  set  forth  in  the  plaintiffs'  complaint  herein,  is  one  that 
was  discharged  by  the  operation  of  said  bankruptcy  discharge,  and  was 
provable  in  said  bankruptcy  proceedings,  and  was  not  one  which  was 
exempt  from  the  operation  of  the  bankruptcy  statutes." 

Copies  of  the  certificates  of  discharge  were  annexed  to  the  answer. 

The  parties  thereupon  went  to  trial,  and  the  facts  disclosed  by  the 
evidence  were  substantially  in  accordance  with  the  above  statement. 
The  certificates  of  discharge  of  the  defendants  were  given  in  evidence 
under  objections  ;  and  the  plaintiff  asked  to  go  to  the  jury  on  the  ques- 
tion, as  to  whether  the  debt  was  created  by  fraud,  and  also  on  the  ques- 
tion whether  it  was  a  debt  created  by  the  defendants  while  acting  in  a 
fiduciary  character  ;  both  of  which  requests  were  refused,  and  the  court 
directed  the  jury  to  render  a  verdict  for  the  defendants ;  to  all  which 
rulings  and  directions  plaintiffs  duly  excepted.  Judgment  being 
entered  for  the  defendant,  the  plaintiffs  appealed  to  the  Court  of  Ap- 
peals of  New  York,  which  affirmed  the  judgment,  and  remitted  the 
record  to  the  Superior  Court.  The  plaintiffs  sued  out  this  writ  of 
error. 

Mr.  C.  Bairibridge  Smith,  for  plaintiff  in  error. 

Mr.   William  A.  Abbott,  for  defendant  in  error. 

Mr.  Justice  BRADLEY  delivered  the  opinion  of  the  court.  He 
stated  the  facts  in  the  foregoing  language,  and  continued  :  — 

We  have  to  decide  the  question,  whether  a  discharge  in  bankruptcy 
under  the  act  of  1867  operates  to  discharge  the  bankrupt  from  a  debt 
or  obligation  which  arises  from  his  appropriating  to  his  own  use  collat- 
eral securities  deposited  with  him  as  security  for  the  payment  of  money 
or  the  performance  of  a  duty,  and  his  failure  or  refusal  to  return  the 
same  after  the  money  has  been  paid  or  the  duty  performed  ?  or,  whether 
a  debt  or  obligation  thus  incurred  is  within  the  meaning  of  the  33d 
section  of  said  act  §  5,117  Rev.  Stat.,  which  declares  that  "  no  debt 
created  by  the  fraud  or  embezzlement  of  the  bankrupt,  or  by  his  defal- 
cation as  a  public  officer,  or  while  acting  in  any  fiduciary  character, 
shall  be  discharged  under  this  act?"  The  New  York  courts  decided 
that  the  effect  of  the  discharge  in  bankruptcy  was  to  discharge  the 


632  HENNEQUIN   V.   CLEWS.  [CHAP.  VIII. 

debt,  holding  that  the  debt  was  not  created  by  fraud,  nor  by  embezzle- 
ment, nor  whilst  the  bankrupt  was  acting  in  a  fiduciar}7  character. 

The  question  first  came  up  for  discussion  in  the  case  upon  an  order 
for  arresting  the  defendants,  on  a  charge  that  the  debt  was  fraudulent^ 
contracted.  After  obtaining  their  discharge  in  bankruptcy,  the  defend- 
ants moved  to  vacate  the  order  of  arrest,  which  motion  the  Superior 
Court  denied  ;  but  the  Court  of  Appeals  reversed  this  judgment,  and 
granted  the  motion.  The  opinion  of  the  court  on  this  occasion  is  re- 
ported in  77  N.  Y.  427,  and  wa£  referred  to  as  the  ground  of  judgment 
when  the  case  finally  came  up  on  its  merits. 

The  question,  so  far  as  relates  to  the  principle  involved,  is  not  a  new 
one.  It  came  up  for  consideration  under  the  bankrupt  act  of  1841, 
which  withheld  the  benefits  of  the  act  from  all  debts  "  created  by  the 
bankrupt  in  consequence  of  a  defalcation  as  a  public  officer,  or  as  exec- 
utor, administrator,  guardian,  or  trustee,  or  while  acting  in  any  other 
fiduciary  capacity:"  5  Stat.  441,  §  1;  and  which  further  declared 
(amongst  other  things)  that  no  person  should  be  entitled  to  a  discharge 
who  should  "  apply  trust  funds  to  his  own  use."  Ib.  §  4.  In  the  case 
of  Chapman  v.  Forsyth,  2  How.  202,  these  clauses  were  brought  before 
this  court  for  examination.  The  case  was  an  action  of  assumpsit  for 
the  proceeds  of  15'0  bales  of  cotton  shipped  to  and  sold  by  the  defend- 
ants as  brokers  or  factors  of  the  plaintiff.  One  of  the  defendants 
pleaded  a  discharge  in  bankruptcy,  and  the  judges  of  the  Circuit  Court 
were  divided  in  opinion  on  the  question  whether  a  commission  mer- 
chant or  factor,  who  sells  for  others,  is  indebted  in  a  fiduciary  capacity 
within  the  act,  if  he  withholds  the  money  received  for  property  sold 
by  him,  and  if  the  propert}'  is  sold,  and  the  money  received  on  the 
owner's  account.  The  opinion  of  this  court  was  delivered  by  Mr. 
Justice  McLean,  and  the  above  question  was  answered  in  the  following 
terms:  "  If  the  act  embrace  such  a  debt,  it  will  be  difficult  to  limit  its 
application.  It  must  include  all  debts  arising  from  agencies  ;  and,  in- 
deed, all  cases  where  the  law  implies  an  obligation  from  the  trust  re- 
posed in  the  debtor.  Such  a  construction  would  have  left  but  few  debts 
on  which  the  law  could  operate.  In  almost  all  the  commercial  transac- 
tions of  the  country,  confidence  is  reposed  in  the  punctuality  and  in- 
tegrity of  the  debtor,  and  a  violation  of  these  is,  in  a  commercial  sense, 
a  disregard  of  a  trust.  But  this  is  not  the  relation  spoken  of  in  the  first 
section  of  the  act.  The  cases  enumerated,  '  the  defalcation  of  a  public 
officer,'  'executor,'  'administrator,'  'guardian,'  or  '  trustee,'  are  not 
cases  of  implied,  but  special  trusts,  and  the  '  other  fiduciary  capacity ' 
mentioned,  must  mean  the  same  class  of  trusts.  The  act  speaks  of 
technical  trusts,  and  not  those  which  the  law  implies  from  the  contract. 
A  factor  is  not,  therefore,  within  the  act.  This  view  is  strengthened, 
and,  indeed,  made  conclusive  by  the  provision  of  the  fourth  section, 
which  declares  that  no  '  merchant,  banker,  factor,  broker,  underwriter, 
or  marine  insurer,'  shall  be  entitled  to  a  discharge,  '  who  has  not  kept 
proper  books  of  accounts.'  In  answer  to  the  second  question,  then, 


SECT.  III.]  HENNEQUIN   V.   CLEWS.  633 

we  say,  that  a  factor,  who  owes  his  principal  money  received  on  the 
sale  of  his  goods,  is  not  a  fiduciary  debtor  within  the  meaning  of 
the  act. 

This  decision  was,  of  course,  authoritative  ;  it  was  not  only  followed, 
but  approved  by  the  highest  courts  of  several  of  the  States.  In  Hay- 
man  v.  Pond,  7  Mete.  (Mass.)  328,  the  Supreme  Court  of  Massachu- 
setts, speaking  through  Chief  Justice  Shaw,  after  referring  to  the 
decision  in  Chapman  v.  Forsyth,  said:  "  We  have  no  doubt  that  this 
is  the  true  construction  of  the  law."  In  Austill  v.  Crawford,  7  Ala. 
335,  and  in  Commercial  Bank  v.  Buckner,  2  La.  Ann.  1023,  the  same 
views  were  expressed,  though  the  contrary  was  held  in  Matteson  v. 
Kellogg,  15  111.  547,  and  in  Flagg  v.  Ely,  1  Edmonds,  N.  Y.  Select 
Cas.  206. 

Under  the  act  of  1867  a  series  of  diverse  rulings  by  different  courts 
arose  on  the  subject ;  one  class  treating  agents,  factors,  commission 
merchants,  &c.,  as  acting  in  a  fiduciary  character  under  the  act,  on  the 
view  that  the  act  was  conceived  in  broader  and  more  general  terms  than 
the  act  of  1841 ;  the  other  class  taking  the  view  that  the  act  of  1867 
used  the  phrase,  "  acting  in  any  fiduciary  character,"  in  the  sense 
which  it  had  received  by  construction  in  the  act  of  1841.  The  cases 
on  both  sides  of  the  question  are  collected  in  Bump's  Law  of  Bank- 
ruptcy, under  section  33  of  the  original  Bankrupt  Act  of  1867,  section 
5,117  of  the  Revised  Statutes,  pp.  742-745,  10th  edition.  Those  tak- 
ing the  first  view  are  In  re  Sej'mour,  1  Ben.  348 ;  In  re  Kimball, 
2  Ben.  554  ;  s.  c.  6  Blatch.  292;  Whitaker  v.  Chapman,  3  Lans.  155  ; 
Lemcke  v.  Booth,  47  Mo.  385 ;  Gray  v.  Farran,  2  Cincin.  Sup. 
Ct.  226  ;  Treadwell  v.  Holloway,  12  Bank.  Reg.  61 ;  Meader  v.  Sharp, 
54  Geo.  125;  s.  c.  14  Bank.  Reg.  492;  Benning  v.  Bleakley,  27  La. 
Ann.  257.  Those  taking  the  other  view  are  Woolsey  v.  Cade,  15 
Bank.  Reg.  238 ;  Owsley  v.  Cobin,  Ib.  489  ;  Cronan  v.  Cotting,  104 
Mass.  245.  We  have  examined  these  cases,  and  others  bearing  on 
the  subject,  but  do  not  deem  it  necessary  to  refer  to  them  more  par- 
ticularly, inasmuch  as  the  question  has  recently  been  fully  considered 
by  this  court,  and  the  decision  in  Chapman  v.  Forsyth  has  been 
followed. 

We  refer  to  the  case  of  Neal  v.  Clark,  95  U.  S.  704,  reversing  the  de- 
cision of  the  Court  of  Appeals  of  Virginia  in  Jones  v.  Clark,  25  Gratt. 
642.  This  case  involved  the  meaning  and  application  of  the  word 
"  fraud,"  in  the  clause  under  consideration,  —  "no  debt  created  by 
fraud  or  embezzlement  of  the  bankrupt,  or  by  his  defalcation  as  a 
public  officer,  or  while  acting  in  any  fiduciary  character,  shall  be  dis- 
charged," &c.  An  executor  sold  certain  bonds  which  he  had  received 
on  the  sale  of  the  property  belonging  to  the  estate,  the  proceeds  of 
which  the  will  directed  him  to  distribute  in  a  certain  way-  The  sale  of 
the  bonds  was  held  by  the  State  court  to  have  been  a  misappropriation 
of  them,  amounting  to  a  devantf.tvity  in  which  Neal,  the  purchaser,  was 
held  to  be  a  participant  and  liable  to  account  for  the  value  of  the  bonds 


634  HENNEQUIN   V.   CLEWS.  [CHAP.  VIII. 

purchased ;  not  because  he  was  guilty  of  any  actual  fraud,  but  because, 
in  view  of  the  circumstances  attending  his  purchase,  he  had  committed 
constructive  fraud.  Neal  had  in  the  meantime  obtained  his  discharge 
in  bankruptcy,  which  he  pleaded  in  bar  to  a  recover}'  against  him ;  but 
the  State  court  held  that  "  fraud,"  in  the  33d  section  of  the  bankrupt 
act  (of  1867)  included  both  constructive  and  actual  fraud,  and  over- 
ruled his  plea.  We  reversed  the  judgment  of  the  State  court  on  this 
point,  and  decided  that  Neal  was  entitled,  under  the  circumstances  of 
the  case,  to  the  benefit  of  his  discharge  in  bankruptcy.  Adopting  and 
applying  the  reasoning  of  the  court  in  Chapman  v.  Fors3"th,  we  said, 
"  that  in  the  section  of  the  law  of  1867  which  sets  forth  the  classes  of 
debts  which  are  exempted  from  the  operation  of  a  discharge  in  bank- 
ruptcy, debts  created  by  '  fraud '  are  associated  directly  with  debts 
created  by  '  embezzlement.'  Such  association  justifies,  if  it  does  not 
imperatively  require,  the  conclusion  that  the  '  fraud '  referred  to  in  that 
section  means  positive  fraud,  or  fraud  in  fact,  involving  moral  turpi- 
tude or  intentional  wrong,  as  does  embezzlement ;  and  not  implied  fraud, 
or  fraud  in  law,  which  may  exist  without  the  imputation  of  bad  faith 
or  immorality." 

The  question  came  before  us  again  in  Wolf  v.  Stix,  90  U.  S.  1,  in 
which  a  sale  of  goods  to  Wolf  b}*  an  insolvent  firm  was  set  aside  as 
fraudulent  against  creditors,  and  Wolf  and  his  sureties  were  then  sued 
on  the  bond  given  by  him  for  a  return  of  the  goods  when  attached  at 
the  commencement  of  the  proceedings.  Wolf  having  in  the  meantime 
become  bankrupt,  and  obtained  his  discharge,  pleaded  the  same  in  bar 
of  the  action.  We  held  the  plea  to  be  a  good  one  to  the  action  on 
the  bond. 

The  present  case  is  not  precisely  like  either  that  of  Chapman  v. 
Forsyth  or  Neal  v.  Clark ;  but  is  very  difficult  to  distinguish  it,  in 
principle,  from  the  cases  of  commission  merchants  and  factors  failing 
to  account  for  the  proceeds  of  property  committed  to  them  for  sale. 
There  is  no  more  —  there  is  not  so  much  —  of  the  character  of  trustee, 
in  one  who  holds  collateral  securities  for  a  debt,  as  in  one  who  receives 
money  from  the  sale  of  his  principal's  property  —  money  which  belongs 
to  his  principal  alone,  and  not  to  him,  and  which  it  is  his  duty  to  turn 
over  to  his  principal  without  delay.  The  creditor  who  holds  a  collat- 
eral, holds  it  for  his  own  benefit  under  contract.  He  is  in  no  sense  a 
trustee.  His  contract  binds  him  to  return  it  when  its  purpose  as  secur- 
ity is  fulfilled  ;  but  if  he  fails  to  do  so,  it  is  only  a  breach  of  contract, 
and  not  a  breach  of  trust.  A  mortgagee  in  possession  is  bound  by 
contract,  implied  if  not  expressed,  to  deliver  up  possession  of  the 
mortgaged  premises  when  his  debt  is  satisfied  ;  but  he  is  not  regarded 
as  guilty  of  breach  of  trust  if  he  neglects  or  refuses  to  do  so,  but  onhr 
of  a  breach  of  contract. 

The  English  authorities  are  more  in  accord  with  the  decisions  in  this 
country  which  take  a  different  view  from  our  own  on  this  question. 
The  Debtor's  Act  of  1869,  32  &  33  Viet,  ch.  62,  abolished  imprison- 


SECT.  III.]  HENNEQUIN   V.   CLEWS.  635 

ment  for  debt,  except  in  the  case  of  statutory  penalties,  and  when 
arising  from  the  default  of  a  trustee  or  person  acting  in,  a  fiduciary 
capacity,  who  has  been  ordered  by  a  court  of  equity  to  pay  money  in 
his  possession  or  under  his  control ;  and  except  defaults  of  attorneys 
and  solicitors,  and  some  other  special  delinquents.  The  Bankrupt  Act 
of  the  same  date,  32  &  33  Viet,  ch.  71,  declares  that  the  order  of  dis- 
charge of  a  bankrupt  shall  not  release  him  from  any  debt  or  liability  in- 
curred or  forborne  by  means  of  any  fraud  or  breach  of  trust.  Section  49. 
Under  these  statutes,  where  an  agent  failed  to  pa}-  over  moneys  collected 
for  his  principal,  Sir  George  Jessel  said,  "  no  doubt  this  debt  was  in- 
curred by  fraud."  Pashler  v.  Vincent,  8  Chan.  Div.  825.  The  same 
doctrine  was  held  in  Marris  v.  Ingram,  13  Chan.  Div.  838,  where  a  son 
was  in  the  management  of  his  father's  farm,  and  sold  part  of  the  stock 
and  received  the  proceeds.  After  his  father's  death,  being  ordered  to 
pa)'  over  the  money,  and  failing  to  do  so,  he  was  held  to  be  a  person 
acting  in  a  fiduciary  capacity.  In  Middleton  v.  Chichestcr,  19  Weekly 
Reporter,  369,  Lord  Hatherly  said  that  "  the  exceptions  [in  the  Debt- 
or's Act]  are  all  referable,  not  to  debts  paj'able  simpliciter,  but  to  debts 
contracted  in  a  manner  in  some  degree  subject  to  observation  as  being 
worthy  of  being  treated  with  punishment.  ...  In  every  case  we  find 
some  shade  of  misconduct ;  something  of  the  character  of  delinquency, 
though  varying  in  description." 

For  other  English  cases  arising  under  the  acts  referred  to,  see  Ex 
parte  Wood,  Re  Chapman,  21  W.  R.  71 ;  Ex  parte  Hooson,  21  W. 
R.  152 ;  s.  c.  L.  R.  8  Ch.  231 ;  Cobham  v.  Dalton,  L.  R.  10  Ch.  655 ; 
In  re  Deere,  Atty.,  Ib.  658;  Ex  parte  Halford,  In  re  Jacobs,  L.  R.  19 
Eq.  436 ;  Phosphate  Co.  v.  Hartmouut,  25  W.  R.  743  ;  Earl  of  Lewes 
v.  Barnett,  6  Ch.  Div.  252  ;  Barrett  v.  Hammond,  10  Ch.  Div.  285 ; 
Ex  parte  Hemming,  In  re  Chatterton,  13  Ch.  Div.  163  ;  Fisher's  Dig. 
Supp.  by  Chitty,  tit.  Debtor's  Act,  Col.  1287. 

It  is  evident  that  the  English  courts  regard  many  transactions  as 
frauds  or  breaches  of  trust  under  their  statutes,  which  we  do  not  hold 
to  be  such  under  our  bankrupt  acts.  Perhaps  the  liberal  construction 
made  in  favor  of  the  certificate  of  discharge  in  this  country  is  due  to 
the  peculiar  modes  and  habits  of  business  prevailing  amongst  our  peo- 
ple. It  is,  no  doubt,  true,  as  said  in  Chapman  v.  Forsyth,  that  a  con- 
struction of  the  excepting  clauses  which  would  make  them  include  debts 
arising  from  agencies  and  the  like,  would  leave  but  few  debts  on  which 
the  law  would  operate.  At  all  events,  we  think  that  the  previous  deci- 
sions of  this  court,  and  of  the  State  courts  in  the  same  direction,  accord 
with  the  true  spirit  and  meaning  of  the  act  of  Congress,  and  with  the 
necessities  of  our  business  conditions  and  arrangements. 

The  judgment  of  the  Court  of  Appeals  of  the  State  of  New  York  is 

Affirmed.1 

1  Strang  v.  Bradner,  114  U.  S.  559  ;  Palmer  v.  Hussey,  119  U.  S.  96;  Noble  v. 
Hammond,  129  U.  S.  69  ;  Upshur  v.  Briscoe,  138  U.  8.  365 ;  Crawford  v.  Burke, 
195  U.  S.  176;  Re  Adler,  144  Fed.  659,  152  Fed.  422;  Crosby  v.  Miller,  25  R.  I.  172. 


636  LEITCH   V.   NORTHERN   PACIFIC   RAILWAY   CO.       [CHAP.  VIII. 

LEITCH  v.   NORTHERN  PACIFIC  RAILWAY   COMPANY. 

MINNESOTA  SUPREME  COURT,  MAY  26,  1905. 
[Reported  in  103  Northwestern  Reporter,  704.] 

START,  C.  J.  This  is  an  appeal  b}-  the  defendant  from  a  judgment 
of  the  municipal  court  of  the  cit3r  of  St.  Paul.  There  is  no  dispute  as 
to  the  facts  upon  which  the  judgment  is  based.  They  are  substantially 
these:  On  Februar}'  4,  1903,  Mr.  O.  G.  Ayers,  who  was  then  in  the 
employment  of  the  defendant,  hereafter  referred  to  as  the  "  debtor," 
borrowed  of  the  plaintiff  $40,  and  gave  his  promissory  note  therefor  to 
the  plaintiff,  and  at  the  same  time  executed  to  the  plaintiff  a  writing, 
the  here  material  provisions  of  which  are  as  follows,  namely  :  "  For  a 
valuable  consideration,  the  receipt  of  which  is  hereby  acknowledged,  I 
do  hereby  transfer,  assign,  set  over  to  J.  M.  Leitch,  all  wages  and 
claim  for  wages,  or  any  moneys  due,  or  to  become  due  me  from  my 
respective  employer,  viz.,  Northern  Pacific  Railway  Company,  or  any 
other  company,  firm  or  corporation,  person  or  persons,  I  may  now,  or 
may  hereafter  be  employed  b}',  until  ni}*  indebtedness  to  J.  M.  Leitch 
has  been  paid  in  full.  I  do  hereby  constitute  and  appoint  the  said  J. 
M.  Leitch  my  attorne}-,  in  my  name  to  take  all  legal  measures  which 
may  be  necessary  for  the  complete  recovery  and  enjoyment  of  the 
claim  hereb}^  assigned,  and  I  hereby  authorize  and  empower,  and  direct 
the  Northern  Pacific  Railway  Co. ,  or  any  other  company,  firm,  corpo- 
ration, person  or  persons  I  ma}r  now  or  hereafter  be  employed  by,  to 
pa\*  the  said  demand  and  claim  for  wages,  or  mone}*s  due  me  to  the 
said  J.  M.  Leitch  and  hereby  authorize  and  empower  him  to  execute 
such  receipts  as  may  be  required.  And  also  to  endorse  for  me  my 
name  to  nay  checks  or  warrants  which  ma^y  be  issued  to  me  for  such 
salary  or  mone\'s  due  me  and  receipt  for  same  in  my  name."  The  de- 
fendant was  notified  of  the  execution  of  this  instrument  on  February  29, 
1904,  and  a  copy  thereof  was  filed  with  it.  The  debtor  continued  in 
the  employment  until  April  26,  1904,  when  he  quit.  The  record  does 
not  disclose  the  terms  of  his  employment,  but  it  may  be  inferred  that 
it  was  under  one  contract.  He  was  fully  paid  for  all  of  his  services 
rendered  prior  to  the  month  of  February,  1904,  before  March  1st  fol- 
lowing. Sufficient  wages,  however,  were  earned  by  the  debtor  between 
the  date  of  the  filing  of  the  copy  of  the  instrument  with  the  defendant 
on  February  29,  1904,  and  the  time  he  quit  work,  to  satisfy  the  plain- 
tiff's claim.  On  June  3,  1903,  the  debtor  filed  his  petition  in  bank- 
ruptcy, with  a  complete  schedule  of  his  debts  and  liabilities,  including 
the  debt  to  the  plaintiff,  as  evidenced  by  the  promissory  note  which  the 
plaintiff  is  attempting  to  collect  by  this  action  to  recover  from  the  de- 
fendant $45.75  due  to  the  debtor  for  wages.  In  November  the  debtor 
was  duly  discharged  in  bankruptcy  from  all  of  his  debts  existing  at  the 
time  of  his  filing  his  petition  not  specifically  exempted  from  the  opera- 


SECT.  III.]      LEITCH   V.    NORTHERN   PACIFIC   RAILWAY  CO.  637 

tion  of  the  bankruptcy  act.     Upon  these  facts  the  trial  court  directed 
judgment  for  the  plaintiff  for  the  amount  claimed. 

The  only  question  for  our  decision  is  whether  such  facts  justify  the 
decision  of  the  trial  court.  A  solution  of  this  question  depends  upon 
the  effect  of  the  debtor's  discharge  in  bankruptcy  upon  the  alleged  as- 
signment of  his  wages.  Did  it  release  him  from  the  liability  of  having 
his  wages,  earned  after  his  discharge,  collected  by  the  plaintiff  by 
virtue  of  the  assignment  and  applied  to  the  payment  of  his  debt?  If 
the  plaintiff  had  a  valid  lien  at  the  time  of  the  debtor's  discharge  upon 
his  wages  thereafter  to  be  earned  as  security  for  the  payment  of  his 
debt,  then  the  discharge  would  not  affect  such  vested  security.  This 
conclusion  follows  from  the  admitted  proposition  that  a  discharge  in 
bankruptcy  only  relieves  the  debtor  from  all  legal  obligation  to  pay  the 
debt,  and  from  all  liability  of  having  his  future-acquired  property  and 
earnings  seized  to  pay  the  debt;  but  all  valid  and  existing  liens  on 
specific  property  or  trusts  therein  securing  the  debt  are  not  impaired 
by  the  discharge.  Evans  v.  Staale,  88  Minn.  253,  92  N.  W.  951. 
The  case  cited  was  one  where  the  creditor  at  the  time  the  bankruptcy 
proceedings  were  initiated  had  the  vested  right  to  enforce  a  trust  in 
certain  land  the  legal  title  to  which  was  held  by  a  third  party  for  the 
payment  of  his  debt  against  the  bankrupt.  It  was  held  that  the  right 
to  enforce  the  trust  was  not  affected  by  the  debtor's  discharge.  The  deci- 
sion, however,  is  not  relevant  to  the  question  whether  the  plaintiff  herein 
had  a  valid  lien  at  the  time  of  his  debtor's  discharge  upon  his  wages 
thereafter  to  be  earned.  In  the  case  of  Wenham  v.  Mallin,  103  111.  App. 
609,  relied  upon  by  the  plaintiff,  it  does  not  appear  whether  the  wages 
which  it  was  sought  to  subject  to  the  payment  of  a  debt  from  which  the 
debtor  had  been  discharged  in  bankruptcy  were  earned  after  such  dis- 
charge.1 The  decision  in  that  case  is  based  upon  the  admitted  propo- 
sition that  valid  liens  on  property  are  not  affected  by  a  discharge  in 
bankruptcy,  and  the  statement  that  the  creditor  had  a  vested  property 
right  in  the  wages  of  his  debtor  to  secure  the  payment  of  his  debt  which 
was  not  affected  by  a  discharge  in  bankruptcy.  The  case  is  not  strictly 
in  point.  The  plaintiff  also  relies  upon  the  decisions  of  this  court  sus- 
taining the  validity  of  chattel  mortgages  on  crops  to  be  grown  or  on 
property  to  be  acquired.  Minn.  Linseed  Co.  v.  Maginis,  32  Minn. 
193,  20  N.  W.  85 ;  Miller  v.  McCormick  Co.,  35  Minn.  399,  29  N.  W. 
52;  Ludlum  v.  Rothschild,  41  Minn.  218,  43  N.  W.  137;  Hogan  v. 
Elevated  Co.,  66  Minn.  344,  69  N.  W.  1.  Apparently  the  cases  are 
in  point,  but  not  in  fact.  There  is  a  fundamental  distinction  between  a 
mortgage  on  specific  crops  to  be  sown  or  definitely  described  chattels 
to  be  acquired  and  a  mortgage  on  the  future  earnings  of  a  debtor  —  a 
mere  expectancy,  depending  upon  a  variety  of  vague  contingencies. 
Again,  there  are  reasons  of  public  policy  which  differentiates  a  inort- 

i  The  decision  was  affirmed  in  Mallin  v.  Wonham,  209  111.  252.  It  in  a  probable 
inference  from  the  facts  stated  in  the  case  that  the  litigation  concerned  wages  earned 
after  the  discharge  in  bankruptcy. 


638  LEITCH   V.    NORTHERN   PACIFIC   RAILWAY  CO.      [CHAP.  VIII. 

gage  on  chattels  to  be  acquired  and  one  on  wages  to  be  earned.  When 
a  necessitous  wage-earner  is  compelled  to  mortgage  his  future  earnings, 
he  mortgages  not  his  chattels,  but  the  means  whereby  he  may  live  and 
maintain  his  family.  The  State  necessarily  has  an  interest  in  such 
contracts,  and  it  is  contrary  to  a  wise  public  policy  to  give  effect  to 
them,  except  to  a  limited  extent.  The  rule  on  principle  and  deducible 
from  the  decisions  of  this  court  is  that  an  assignment  of  wages  to  be 
earned  in  the  future  under  an  existing  contract  of  employment  to  secure 
a  present  debt  or  future  advances  is  valid  as  an  agreement,  and  takes 
effect  as  an  assignment  as  the  wages  are  earned,  but  an  assignment  of 
wages  to  be  earned,  without  limit  as  to  amount  or  tune,  are  void. 
O'Connor  v.  Meehan,  47  Minn.  247,  49  N,  W.  982  ;  Steinbach  v. 
Brant,  79  Minn.  383,  82  N.  W.  651,  79  Am.  St.  Rep.  494 ;  Baylor  v. 
Butterfass,  82  Minn.  21,  84  N.  W.  640.  Tested  by  this  rule,  it  logi- 
cally follows  that  the  plaintiff,  when  the  debtor  filed  his  petition  in 
bankruptcy,  and  when  he  received  his  discharge,  had  no  lien  on  or 
vested  security  in  the  wages  of  the  debtor  thereafter  to  be  earned  by 
virtue  of  his  contract,  which  was  to  take  effect  as  an  assignment  when 
the  wages  were  earned.  The  plaintiff  then  had  at  most  a  mere  expect- 
ancy, depending  on  contingencies.  We  accordingly  hold  that  the  dis- 
charge in  bankruptcy  released  the  debtor  from  any  liability  of  having 
his  wages  thereafter  earned  applied  in  payment  of  the  debt  from  which 
he  had  been  discharged. 

It  is  urged  by  the  plaintiff  that  the  discharge  of  the  debtor  is  per- 
sonal to  himself,  and  that  it  is  not  available  to  the  defendant  as  a  de- 
fence. This  is  a  misapplication  of  the  rule,  for  the  debtor  is  not  a 
party  to  this  action,  and  the  defendant  primarity  owes  the  wages  to 
him,  and  must,  for  its  own  protection,  put  the  plaintiff  to  the  proof  of 
his  claim  to  recover  them,  and  bring  to  the  attention  of  the  court  the 
fact  of  the  debtor's  discharge  in  bankruptc}". 

It  is  also  urged  b\-  the  plaintiff  that  the  validity  of  the  assignment 
was  conceded  b\  the  defendant  on  the  trial  of  the  action,  and  that  he 
cannot  question  its  validity  in  this  court.  We  do  not  so  understand  the 
record,  but,  however  this  ma}'  be,  the  question  of  the  effect  of  the 
debtor's  discharge  necessaril}*  involved  the  quescion  of  the  scope  and 
effect  of  the  assignment. 

It  follows  that  the  facts  admitted  by  the  pleadings  and  found  by  the 
trial  court  do  not  sustain  its  judgment,  and  that  the  judgment  must  be 
reversed,  and  the  case  remanded,  with  directions  to  the  trial  court  to 
amend  its  conclusions  of  law  so  as  to  direct  judgment  for  the  defendant 
on  the  merits.  So  ordered.1 

*  Re  Home  Discount  Co.,  147  Fed.  538;  Re  Karns,  148  Fed  143  ;  Re  Lineberry,  183 
Fed.  338;  Levi  v.  Loevenhart,  138  Ky.  133,  ace.  See  also  Re  Sims,  176  Fed.  645. 

Mallin  v.  Wenham,  209  111.  252 ;  Citizens'  Loan  Assoc.  v.  Boston  &  Maine  R.,  196  Mass. 
528,  contra. 


y 


SECT.  III.]  BIRKETT    V.    COLUMBIA   BANK.  639 


BIRKETT   v.   COLUMBIA   BANK.  , 

SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  28-NovEMBER 

28,  1904. 

[Reported  in  195   United  States,  345.] 

THIS  is  an  action  on  a  promissory  note  for  $750.  The  defence  is 
discharge  in  bankruptcy.  The  making  of  the  note  was  admitted,  and 
the  only  question  presented  is  the  effect  of  the  discharge! 

The  facts  as  found  by  the  court  are :  Plaintiff  in  error  and  one 
Calvin  Russell,  who  died  before  the  commencement  of  this  action,  were 
partners  doing  business  under  the  name  of  Russell  &  Birkett,  and  in 
that  name  made  and  delivered  to  the  Manhattan  Railway  Advertising 
Company  a  promissory  note  for  $750.  The  latter  company  indorsed 
the  note  to  defendant  in  error,  of  which  Russell  &  Birkett  had 
knowledge  before  its  maturity.  On  April  13,  1899,  the  firm  of 
Russell  &  Birkett  and  plaintiff  in  error,  upon  their  own  petition,  were 
adjudicated  bankrupts  in  the  United  States  District  Court  for  the 
Northern  District  of  New  York,  and  were  discharged  September  12, 
1899.  The  claim  of  defendant  in  error  was  not  scheduled,  either  as  a 
debt  of  the  firm  or  of  plaintiff  in  error,  in  time  for  proof  and  allowance 
with  the  name  of  the  defendant  in  error,  though  defendant  in  error 
was  known  at  the  time  of  filing  the  schedules  to  be  the  owner  and 
holder  thereof  by  plaintiff  in  error,  and  that  defendant  in  error  had  no 
notice  or  actual  knowledge  or  other  knowledge  of  the  proceedings  in 
bankruptc}7  prior  to  the  discharge  of  the  bankrupts.  No  notice  of  the 
proceedings  in  bankruptc}"  was  at  any  time  given  to  defendant  in  error 
by,  or  by  the  direction  of,  the  bankrupts  or  either  of  them.  It  was 
decided  that  the  claim  of  defendant  in  error  was  not  barred  by  the  dis- 
charge in  bankruptcy,  and  judgment  was  directed  for  defendant  in  error. 

Mr.  John  Murray  Downs,  with  whom  Mr.  Thomas  Carmody  and 
Mr.  Robert  G.  Scherer  were  on  the  brief,  for  plaintiff  in  error. 

Mr.  Julius  J.  Frank  for  defendant  in  error. 

Mr.  Justice  MCKENNA,  after  making  the  foregoing  statement, 
delivered  the  opinion  of  the  court. 

The  judgment  was  successively  confirmed  by  the  Appellate  Division 
of  the  Supreme  Court  and  the  Court  of  Appeals.  174  N.  Y.  112. 
Thereupon  judgment  was  entered  in  the  Supreme  Court  in  accordance 
with  the  direction  of  the  Court  of  Appeals.  This  writ  of  error  was 
then  sued  out. 

Section  7  of  the  Bankrupt  Law  of  1898  devolves  a  number  of  duties 
upon  the  bankrupt,  all  directed  to  the  purpose  of  a  full  and  unreserved 
exposition  of  his  affairs,  property,  and  creditors.  Among  his  duties 
he  is  required  to  "  preparo,  make  oath  to,  and  file  in  the  court,  within 
ten  days  ...  a  schedule  of  his  property,  showing  the  amount 
and  kind  of  property,  the  location  thereof,  its  money  value  in  detail, 
and  a  list  of  his  creditors,  showing  their  residences,  if  known,  if  un- 
known, that  fact  to  be  stated,  the  amounts  due  each  of  them,  the 


BIRKETT   V.    COLUMBIA    BANK.  [CHAP.  VIII. 

consideration  thereof,  the  security  held  b}'  them,  if  any,  and  a  claim 
for  such  exemptions  as  he  may  be  entitled  to,  all  in  triplicate,  one 
copy  of  each  for  the  clerk,  one  for  the  referee,  and  one  for  the  trus- 
tee. .  .  ."  To  the  neglect  of  this  duty  the  law  attaches  a  punitive 
consequence.  Section  17  provides  :  "  A  discharge  in  bankruptcy  shall 
release  a  bankrupt  of  all  of  his~  provable  debts,  except  such  as  ... 
have  not  been  duty  scheduled  in  time  for  proof  and  allowance,  with 
the  name  of  the  creditor  if  known  to  the  bankrupt,  unless  such  creditor 
had  notice  or  actual  knowledge  of  the  proceedings  in  bankruptcy.  .  .  ." 

But  plaintiff  in  error  urges  that  defendant  in  error  did  have  actual 
knowledge  of  the  proceedings  in  bankruptcy,  and  that  Congress  con- 
templated that  there  might  be  an  intentional  or  inadvertent  omission 
of  the  names  of  creditors  from  the  schedule  of  debts,  and  provided 
against  it  by  other  provisions  of  the  law,  especially  by  that  which 
makes  it  the  duty  of  the  referee  to  give  notice  to  creditors  (sec.  38), 
and  by  that  which  imposes  the  duty  on  the  bankrupt  to  appear  at  the 
meeting  of  creditors  for  examination. 

The  finding  of  the  trial  court  is  that  defendant  "  had  no  notice  or 
actual  knowledge,  or  other  knowledge,  of  said  proceedings  in  bank- 
ruptcy prior  to  the  discharge  of  the  bankrupt  therein."  This  is  made 
more  definite  as  to  time  by  the  Court  of  Appeals.  Defendant  in  error, 
upon  making  an  inquiry  by  letter  November  6,  1899,  about  Russell  & 
Birkett,  was  informed  that  they  had  gone  through  bankruptcy,  and 
subsequently  (November  17)  the  Northern  District  was  given  as  the 
district  of  the  proceedings.  The  discharge  was  September  12,  1899. 
Knowledge,  therefore,  it  is  contended,  came  to  defendant  in  error  in 
time  to  prove  its  claim  (section  65),  and  to  move  to  revoke  the  dis- 
charge of  the  bankrupt  (section  15).  It  is  hence  argued  that  defendant 
in  error  must  be  held  to  have  had  "actual  knowledge  of  the  pro- 
ceedings in  bankruptcy,"  as  those  words  of  section  17  must  be  con- 
strued. We  do  not  think  so,  nor  is  that  construction  supported  by  the 
other  provisions  of  the  law  urged  by  plaintiff  in  error.  Actual  knowl- 
edge of  the  proceedings  contemplated  by  the  section  is  a  knowledge 
in  time  to  avail  a  creditor  of  the  benefits  of  the  law  —  in  time  to  give 
him  an  equal  opportunity"  with  other  creditors — not  a  knowledge  that 
may  come  so  late  as  to  deprive  him  of  participation  in  the  administra- 
tion of  the  affairs  of  the  estate  or  to  deprive  him  of  dividends  (section 
65).  The  provisions  of  the  law  relied  upon  by  plaintiff  in  error  are 
for  the  benefit  of  creditors,  not  of  the  debtor.  That  the  law  should 
give  a  creditor  remedies  against  the  estate  of  a  bankrupt,  notwith- 
standing the  neglect  or  default  of  the  bankrupt,  is  natural.  The  law 
would  be,  indeed,  defective  without  them.  It  would  also  be  defective 
if  it  permitted  the  bankrupt  to  experiment  with  it  —  to  so  manage  and 
use  its  provisions  as  to  conceal  his  estate,  deceive  or  keep  his  creditors 
in  ignorance  of  his  proceeding  without  penalty  to  him.  It  is  easy  to 
see  what  results  such  looseness  would  permit  —  what  preference  could 
be  accomplished  and  covered  by  it. 

Judgment  affirmed. 


SECT.  III.]  McKEE   V.   PREBLE.  641 


McKEE  v.  PREBLE. 

NEW  YORK  SUPREME  COURT,  APPELLATE  DIVISION, 
DECEMBER  20,  1912. 

[Reported  in  154  New  York  Appellate  Division,  156.] 

SCOTT,  J. : 

Plaintiff  recovered  a  judgment  against  defendants  on  May  25,  1900. 
On  April  2,  1904,  defendants  filed  a  petition  in  bankruptcy,  the  sched- 
ules giving  plaintiff's  residence  as  212  Ninth  Avenue  in  the  city  of  New 
York,  which  was  his  place  of  business.  The  plaintiff's  residence  up 
to  May  1,  1904,  was  Ridgewood,  N.  J.,  and  after  that  date  was  at  238 
West  Twenty-first  Street  in  New  York  City.  The  city  directories  for 
1904  and  1905  correctly  gave  his  residence  as  above  stated.  Plaintiff 
swears  positively  that  he  never  received  notice  of  defendants'  bank- 
ruptcy. The  rule  appears  to  be  well  established  that  a  debt  is  not 
"duly  scheduled"  within  the  meaning  of  the  Bankruptcy  Act  where 
the  office  or  business  address  is  given  instead  of  the  residence.  (Col- 
lier Bankruptcy  [8th  ed.],  181 ;  Weidenfeld  v.  Tillinghast,  54  Misc. 
Rep.  90;  Haack  v.  Theise,  51  id.  3;  Vaughn  v.  Irwin,  49  id.  611; 
Sutherland  v.  Lasher,  41  id.  249;  affd.,  87  App.  Div.  633;  30  U.  S. 
Stat.  at  Large,  548,  §  7,  subd.  8  ;  Id.  550,  §  17,  subd.  3,  as  amd.  by 
32  id.  798,  §  5.)  If  the  debtor  did  not  know  the  creditor's  residence 
it  was  his  duty  to  make  a  reasonable  effort  to  ascertain  it,  and  in  the 
present  case  he  could  easily  have  found  it  by  consulting  the  city  direc- 
tory. We  are,  therefore,  of  the  opinion  that  the  order  canceling  the 
judgment  should  have  been  vacated.1 

1  A  portion  only  of  the  opinion  is  printed. 

In  Miller  v.  Guasti,  226  U.  S.  170,  a  debt  was  held  not  discharged  when  the  credi- 
tor's address  was  scheduled  "  Unknown  —  California,"  and  in  fact  the  exact  address  was 
known  to  the  bankrupt. 

If  the  street  number  of  an  address  in  a  large  city  could  be  ascertained  and  is  not 
given,  there  is  not  the  "  due  scheduling  "  which  the  law  requires.  Kreitlein  v.  Ferger, 
52  Ind.  App.  199 ;  Cagliostro  v.  Indelle,  58  N.  Y.  Misc.  44. 


642  IN  RE  HOXIE.  [CHAP.  vin. 


IN  RE  HOXIE. 
UNITED  STATES  DISTRICT  COURT  FOR  THE  DISTRICT  OF  MAINE. 

[Reported  in  180  Federal  Reporter,  508.] 

HALE,  District  Judge : 

The  bankrupts  were  duly  adjudicated  on  the  15th  day  of  March, 
1910.  At  the  first  meeting  of  creditors,  claims  of  44  creditors, 
amounting  to  $9,146.59,  were  filed.  Claims  of  certain  other  creditors, 
duly  scheduled,  have  not  yet  been  presented  for  allowance.  Ap- 
praisers have  been  appointed,  and  have  filed  their  reports,  showing 
the  value  of  the  assets  of  the  bankrupts  to  be :  Real  estate,  $5,300, 
which  is  under  mortgage  for  more  than  that  amount ;  personal  prop- 
erty, 04,481.95.  The  appraisers  report  that  the  basis  of  their  valua- 
tion is  partly  at  cost  price  and  partly  at  possible  selling  value.  After 
the  bankrupts  filed  their  schedule  and  were  examined  they  offered  a 
composition  at  the  rate  of  15  per  cent.  A  majority  in  number  of  all 
the  creditors  whose  claims  have  been  allowed,  namely,  29  creditors, 
representing  $5,362.06,  have  accepted  in  writing  the  offer  of  compo- 
sition. The  referee  reports  the  above  facts.  He  recommends  that 
the  composition  will  be  for  the  best  interests  of  the  creditors ;  that  it 
is  made  in  good  faith,  and  not  procured  by  any  means,  promises,  or 
acts  prohibited  by  the  bankruptcy  law ;  and  that  the  bankrupts  have 
not  been  guilty  of  any  act,  or  of  any  failure  in  duty,  which  would  be 
a  bar  to  their  discharge.  He  also  assigns  certain  reasons  which  have 
influenced  him  in  coming  to  his  conclusion. 

It  is  provided  by  section  12d  of  the  Bankruptcy  Act  that  the  judge 
shall  confirm  a  composition  if  satisfied  (1)  that  it  is  for  the  best  in- 
terests of  the  creditors.  There  being  no  question  of  the  bankrupts 
having  been  guilty  of  any  act  or  of  any  failure  in  duty  which  would 
be  a  bar  to  their  discharge,  and  the  offer  and  acceptance  having  been 
in  good  faith,  the  single  question  before  the  court  is  whether  or  not 
the  confirmation  of  the  composition  is  for  the  best  interests  of  all  the 
creditors. 

The  English  rule  appears  to  be  that  the  approval  of  the  majority 
of  the  creditors  to  the  offer  is  final.  Under  our  statute  such  approval 
is  evidence,  prima  facie,  that  the  composition  is  for  the  best  interests 
of  the  creditors ;  and  the  burden  is  upon  those  who  attack  the  com- 
position. The  same  rule  prevailed  under  the  Bankruptcy  Act  of  1867. 
In  exparte  Jewett,  2  Low.  393,  Judge  LOWELL  said: 

"In  the  absence  of  fraud  and  concealment,  the  question  for  the 
court  seems  to  be,  not  whether  the  debtor  might  have  offered  more, 
but  whether  his  estate  would  pay  more  in  bankruptcy." 


SECT.  III.]  IN   RE   HOXIE.  643 

Substantially  the  same  issue  is  before  the  court  under  the  present 
act.  Adler  v.  Jones  (C.  C.  A.,  6th  Cir.),  109  Fed.  967';  United  States 
ex  rel.  Adler  v.  Hammond  (C.  C.  A.,  6th  Cir.),  104  Fed.  862;  In  re 
Waynesboro  Drug  Co.  (D.  C.,  Ga.),  157  Fed.  101. 

Certain  creditors  object  to  the  confirmation  of  the  composition,  and 
file  specifications  of  objections.  The  examination  of  the  bankrupts, 
and  all  papers  relating  to  the  estate,  are  before  me.  It  is  for  the 
court  to  determine  whether  the  non-assenting  creditors  have  met  the 
burden  of  showing  that  the  offer  of  composition  is  inadequate,  and 
that  a  substantially  larger  sum  may  reasonably  be  expected  to  result 
from  the  administration  of  the  assets  under  the  regular  course  of 
bankruptcy  proceedings.  A  sum  less  than  $1,500  is  required  to  carry 
out  the  offer  of  composition.  The  appraisal  shows  assets  amounting 
to  about  $4,500.  The  learned  counsel  for  the  bankrupts  urge  that 
the  evidence  shows  the  appraisal  to  be  largely  in  excess  of  the  avail- 
able value  of  the  property.  It  is  not  necessary  to  discuss  in  detail 
the  different  views  taken  by  counsel  touching  this  matter,  or  the  tes- 
timony relating  to  it.  It  is  in  evidence  that  since  the  adjudication  the 
business  of  the  bankrupt  firm  continues  to  be  carried  on,  and  that 
many  of  the  creditors  who  have  accepted  the  offer  continue  to  supply 
the  bankrupts  with  goods,  and  to  do  business  with  them.  It  is  urged 
that  they  are  willing  to  accept  the  offer  for  the  reason  that  their  profits 
in  future  from  the  conduct  of  the  business  will  fully  repay  them  for 
their  losses  in  bankruptcy.  I  do  not  esteem  it  to  be  my  duty  to  dis- 
cuss the  evidence  in  detail,  or  to  decide  what  induced  the  assenting 
creditors  to  assent.  The  bankruptcy  law  does  not  make  their  decision 
conclusive,  but  only  prima  facie.  Their  assent  does  not  relieve  the 
court  from  passing  on  the  question  whether  the  composition  is  for 
the  best  interests  of  all  the  creditors.  This  question  is  addressed  to 
the  judicial  discretion  of  the  court,  and  from  its  conclusion  either 
party  ma}-  appeal.  Adler  v.  Hammond,  supra. 

Upon  a  careful  review  of  the  examination  of  the  bankrupts,  the 
schedules,  and  all  the  evidence  before  me,  I  cannot  avoid  the  conclu- 
sion that  the  non-assenting  creditors  have  met  the  burden  of  showing 
that  the  acceptance  of  the  composition  will  not  be  for  the  best  interests 
of  all  the  creditors.  The  whole  testimony  leads  me  to  the  conclusion 
that  the  assets  should  produce  nearly  double  the  offer  of  15  per  cent. 
It  is  with  hesitation  that  I  come  to  a  conclusion  opposed  to  that  of 
the  painstaking  and  competent  referee,  who  assigns  some  very  good 
reasons  for  coming  to  his  conclusion.  Some  of  the  reasons  which  he 
assigns,  however,  are  not  tenable,  and  would  enlarge  the  inquiry  be- 
yond its  legitimate  scope. 

The  offer  of  composition  is  not  confirmed. 


644  ALLEN   <k   CO.   V.   FERGUSON.  [CHAP.  VIII. 


IN  RE  GOODWIN. 

UNITED  STATES  DISTRICT  COURT  FOR  THE  EASTERN  DISTRICT  OF 
PENNSYLVANIA,  MARCH  25,  1903. 

[Reported  in  122  Federal  Reporter,  111.] 

J.  B.  MCPHERSON,  District  Judge :  , 

It  is  very  likely  that  the  creditors  may  lose  by  the  defeat  of  the  pro- 
posed composition ;  but  this  consideration  cannot  be  allowed  to  in- 
fluence the  court  in  deciding  whether  the  bankrupt  has  been  "guilty 
of  any  of  the  acts,  or  failed  to  perform  any  of  the  duties,  which  would 
be  a  bar  to  his  discharge."  Bankruptcy  Act,  July  1,  1898,  ch.  541, 
sec.  12,  cl.  "d"  (U.  S.  Comp.  St.  1901,  p.  3427).  I  agree  with  the 
learned  referee  that  the  testimony  establishes  the  fact  satisfactorily 
that  the  bankrupt  has  committed  one  of  the  offenses  specified  in  sec- 
tion 14,  clause  "b."  He  has,  "with  fraudulent  intent  to  conceal  his 
true  financial  condition  and  in  contemplation  of  bankruptcy,  destroyed, 
concealed  or  failed  to  keep  books  of  account  or  records  from  which 
his  true  condition  might  be  ascertained."  This  being  so,  I  think  the 
act  requires  me  to  refuse  approval  of  the  composition,  without  regard 
to  the  question  whether  the  creditors  would  be  benefited  thereby ;  and 
the  fact  that  only  one  creditor  is  actively  objecting,  while  a  large 
majority  is  in  favor  of  taking  what  the  bankrupt  offers,  is  of  no  im- 
portance in  the  present  inquiry. 


ALLEN  &  CO.  v.  FERGUSON. 
SUPREME  COURT  OF  THE  UNITED  STATES,  OCTOBER  TERM,  1873. 

[Reported  in  18  Wallace,  1.] 

ERROR  to  the  Circuit  Court  for  the  Eastern  District  of  Arkansas. 

T.  H.  Allen  &  Co.  sued  A.  H.  Ferguson  upon  a  promissory  note, 
dated  March  20,  1867,  payable  one  day  after  date,  with  interest. 

Ferguson  appeared  and  pleaded  his  discharge  in  bankruptc}'  in  bar 
to  the  action. 

The  plaintiffs  replied  a  new  promise  in  writing  made  while  the  pro- 
ceedings in  bankruptcy  were  pending.  This  promise  the  plaintiffs 
averred  that  they  relied  upon,  and  in  consequence  of  it  made  no  efforts 


SECT.  III.]  ALLEN   A   CO.    V.   FERGUSON.  645 

to  collect  their  debt.     The  alleged  promise  was  contained  in  the  follow- 
ing letter,  which  the  plaintiffs  made  part  of  their  replication,  viz. :  — 

"CROCKETT'S  BLUFF,  ARKANSAS,  January  7th,  1868. 
4 '  MESSRS.  T.  H.  ALLEN  &  Co. 

"DEAR  SIR:  I  avail  myself  of  this  opportunity  to  give  you  a  fare 
statement  of  my  pecuniary  affa'res.  First,  I  failed  to  make  a  crop; 
secondly,  find  myself  involved  as  security  to  the  amount  of  five  or 
eight  thousand  dollars ;  was  sued,  and  judgments  was  render'd  against 
me  at  the  last  twm  of  our  co'rt  for  about  $4000,  a  sum  suf'ic'ent  to 
sell  all  the  avai'ble  property  that  I  am  in  possession  of.  I  lost  about 
$3000  by  persons  taking  the  bankrupt  law.  This  is  my  situation.  I 
was,  as  you  can  re'dily  conclude,  in  a  bad  fix.  To  remain  as  I  was,  at 
that  time,  my  property  would  be  sold  to  pay  security  debts,  and  my 
just  creditors  would  not  get  any  part  of  it,  and  that  I  would  be  redused 
te  insolvency  and  still  ju'gments  against  me.  As  a  last  resort  con- 
cluded to  render  a  s&edule  myself  in  order  to  forse  a  prorater  division 
of  my  affects.  The  five  bales  cotton  I  ship£  you  was  all  my  crop,  to 
pay  you  for  the  meat  that  you  had  sent  me,  to  enable  me  to  make  the 
little  crop  that  I  did  make.  The  cash  that  I  requested  you  to  send 
me  was,  for  myself  and  William  Ferguson,  to  pay  his  hands  for  labor ; 
and  one  hundred  and  fifty  yards  of  the  bag'ing  was  for  W.  Ferguson, 
and  one  barel  of  the  salt.  I  have  been  absent  from  home  for  the  last 
two  weeks  ;  got  home  last  night,  and  has  not  scan  him  yet,  but  sup- 
pose he  has  shiptf  you  some  cotton.  If  he  has  not  done  so,  I  will  sec 
that  he  sends  you  cotton  at  once.  Be  satisfied;  all  will  be  right.  I 
intend  to  pay  all  my  just  debts,  -if  money  can  be  made  out  of  hired 
labor.  Security  debt  I  cannot  pay.  I  shall  have  a  hard  time,  I  sup- 
pose, this  se'son,  but  will  do  the  best  I  can. 

"JAN.  8.  —  Since  the  above  was  writ'en  I  have  seen  William  Fer- 
guson. He  says  he  ship'ed  you  two  bales  cotton,  ten  or  twelve  days 
ago,  and  ship'ed  in  my  name,  as  the  baggin'  was  order'd  by  ine  for 
him.  William  Ferguson  will  be  in  Memphis  betwixt  this  and  the  first 
of  March,  and  will  call  and  see  you  on  bigness  matters  betwixt  me  and 
you'self.  All  will  be  right  betwixt  me  and  my  just  creditors.  Don't 
think  hard  of  me.  Attribet  my  poverty  to  the  unprinciperd  Yankey. 
Let  me  heare  from  you  as  usel. 

"Yours,  very  respectfully, 

"A.  H.  FERGUSON." 

To  this  replication  the  defendant  demurred.  The  demurrer  was  sus- 
tained by  the  Circuit  Court,  and  this  appeal  was  token  by  the  plaintiffs. 

Mr.  A.  H.  Garland,  for  the  plaintiff  in  error ;  Messrs.  Clark  and 
Williams,  contra. 

Mr.  Justice  HUNT  delivered  the  opinion  of  the  court 

The  question  is,  does  the  letter  of  the  defendant,  set  forth  in  the 
replication,  contain  a  sufficient  promise  to  pay  the  debt  in  suit? 

All  the  authorities  agree  in  this,  that  the  promise  by  which  a  dis- 


646  ALLEN   &   CO.   V.   FERGUSON.  [CHAP.  VIII. 

charged  debt  is  revived  must  be  clear,  distinct,  and  unequivocal.  It 
may  be  an  absolute  or  a  conditional  promise,  but  in  either  case  it  must 
be  unequivocal,  and  the  occurrence  of  the  condition  must  be  averred 
if  the  promise  be  conditional.  The  rule  is  different  in  regard  to  the 
defence  of  the  statute  of  limitations  against  a  debt  barred  by  the  lapse 
of  time.  In  that  case,  acts  or  -declarations  recognizing  the  present 
existence  of  the  debt  have  often  been  held  to  take  a  case  out  of  the 
statute.  Not  so  in  the  class  of  cases  we  are  considering.  Nothing  is 
sufficient  to  revive  a  discharged  debt  unless  the  jury  are  authorized  by 
it  to  say  that  there  is  the  expression  by  the  debtor  of  a  .clear  intention 
to  bind  himself  to  the  pa}-ment  of  the  debt.  Thus,  partial  payments 
do  not  operate  as  a  new  promise  to  pa}'  the  residue  of  the  debt.  The 
payment  of  interest  will  not  revive  the  liability  to  pay  the  principal,  nor 
is  the  expression  of  an  intention  to  pay  the  debt  sufficient.  The  ques- 
tion must  be  left  to  the  jury,  with  instructions  that  a  promise  must  be 
found  by  them  before  the  debtor  is  bound.  Hilliard  on  Bankruptc}-, 
264  to  266,  where  the  cases  are  collected. 

The  plaintiffs  in  error  contend  that  such  promise  is  to  be  found  in 
the  letter  of  the  defendant,  forming  a  part  of  their  replication.  They 
rely  chiefly  on  these  expressions:  "  Be  satisfied;  all  will  be  right.  I 
intend  to  pay  all  my  just  debts,  if  money  can  be  made  from  hired  labor. 
Securit}'  debt  I  cannot  pa\" ; "  and  on  the  postscript  where  he  adds, 
"All  will  be  right  betwixt  me  and  m\*  just  creditors." 

There  can  be  no  more  uncertain  rule  of  action  than  that  which  is 
furnished  by  an  intention  to  do  right.  How  or  by  whom  is  the  right 
to  be  ascertained?  What  is  right  in  a  particular  case?  Archbishop 
Whatety  says:  "That  which  is  conformable  to  the  supreme  will  is 
absolutely  right,  and  is  called  right  simply,  without  reference  to  a 
special  end.  The  opposite  to  right  is  wrong."  This  announces  a 
standard  of  right,  but  it  gives  no  practical  aid.  What  may  be  right 
between  the  defendant  and  his  creditors  is  as  difficult  to  determine  as 
if  he  had  no  such  standard.  It  is  not  absolutely  certain  that  it  is  right 
for  a  creditor,  seizing  his  debtor,  to  sa}',  "Pay  me  what  thou  owest," 
or  that  it  is  wrong  for  the  debtor  to  resist  such  an  attack.  It  is  not 
unnatural  that  the  creditor  should  think  that  payment  of  the  debt  was 
right,  and  that  it  was  the  only  right  in  the  case.  It  is  equally  natural 
that  the  debtor  should  entertain  a  different  opinion.  The  law  holds  it 
to  be  right  that  a  debtor  shall  devote  his  entire  property  to  the  pay- 
ment of  his  debts,  and  when  he  has  done  this,  that  after-acquired  prop- 
erty shall  be  his  own,  to  be  held  free  from  the  obligation  of  all  his 
debts,  just  debts  as  well  as  unjust,  principal  debts  as  well  as  security 
debts.  Neither  the  supreme  will,  so  far  as  we  can  ascertain  it,  nor  the 
laws  of  the  land,  require  that  a  debtor  whose  family  is  in  need,  or  who 
is  himself  exhausted  by  a  protracted  struggle  with  poverty  and  mis- 
fortune, should  prefer  a  creditor  to  his  famity ;  that  he  should  appro- 
priate his  earnings  to  the  payment  of  a  debt  from  which  the  judgment 
of  the  law  has  released  him,  rather  than  to  the  support  of  his  family  or 


SECT.  III.]  ALLEN   &   CO.    V.    FERGUSON.  647 

to  his  own  comfort.  What  an  honest  man  should  or  would  do  under 
such  circumstances  it  is  not  always  easy  to  say.  When/,  therefore,  the 
debtor  in  this  case  said  to  the  plaintiff,  "  Be  satisfied  ;  I  intend  to  do 
right ;  all  will  be  right  betwixt  my  just  creditors  and  myself,"  he  can- 
not be  understood  as  saying  that  he  would  certainly  pay  his  debt,  much 
less  that  he  would  pa)*  it  immediately,  as  the  plaintiff  assumes.  What 
is  or  what  may  be  right  depends  upon  man}-  circumstances.  The  prin 
ciple  is  impracticable  as  a  rule  of  action  to  be  administered  03-  the 
courts.  There  is  no  standard  known  to  us  b\*  which  we  are  able  to  say 
that  it  is  wrong  in  the  defendant  not  to  pay  the  plaintiff's  debt. 

We  are  of  the  opinion  that  the  letter  produced  docs  not  contain 
evidence  of  a  promise  to  pay  the  debt  in  suit,  and  that  the  judgment 
appealed  from  must  be  Affirmed.1 

1  In  England  it  was  formerly  held  that  a  new  promise  was  effectual  to  bind  a 
discharged  bankrupt.  Twiss  v.  Massey,  1  Atk.  67 ;  Trueman  v.  Feuton,  Cowp.  544  ; 
Brix  i-  Braham,  1  Bing.  281 ;  Roberts  v.  Morgan,  2  Esp.  736 ;  Birch  v.  Sharland, 
1  T.  R.  715.  By  the  Act  of  7  George  IV.  c.  57,  it  was  provided  {§  61)  that  such 
promises  should  not  be  binding,  and  similar  provisions  were  contained  in  the  Acts  of 
1849  and  1861.  In  the  two  most  recent  Acts— 'those  of  1869  and  1883  —  there  is  no 
such  provision.  Nevertheless  the  courts  still  hold  the  promises  in  question  unenforce- 
able. Jones  v.  Phelps,  20  W.  R.  92 ;  Heather  v.  Webb,  2  C.  P.  D.  1 ;  Ex  parte  Bar- 
row, 18  Ch.  D.  464  ;  unless  given  for  new  consideration,  Jakeman  r.  Cooke.  4  Ex.  D. 
26;  Re  Aylmer,  1  Mauson,  391;  after  the  discharge,  Tsz  parte  Barrow,  IS  Ch.  D. 
464. 

In  this  country  such  promises  have  always  been  held  binding.  Bearing  v.  MoflStt, 
€  Ala.  776;  Evans  v.  Carey,  29  Ala.  109;  Nelson  v.  Stewart,  54  Ala.  115 ;  Wolffe  v. 
Eberlein,  74  Ala.  99;  Lanagin  v.  Nowland.  44  Ark.  84;  Pindall  v.  Loague,  56  Ark. 
525 ;  Ross  v.  Jordan,  62  Ga.  298 ;  St.  John  v.  Stevenson,  90  111.  82 ;  Cheney  v.  Barge, 
26  111.  App.  182;  Carey  v.  Hess,  122  Ind.  398;  Willis  v.  Cushman,  115  Ind.  100; 
Knapp  v.  Hoyt,  57  la.  591  ;  Corliss  v.  Shephard,  28  Me.  550;  Otis  v.  Gazlin,  31  Me. 
567;  I-liissey  v.  Danforth,  77  Me.  17,  22;  Yates  v.  Hollingsworth,  5  H.  &  J.  216; 
Webster  r/Le  Compte,  74  Md.  249;  Maxim  «>.  Morse,  8  Mass.  127;  Champion  «. 
Buckingham,  165  Mass.  76 ;  Craig  r.  Seitz,  63  Mich.  727  ;  Higgins  r.  Dale,  28  Minn. 
126;' Me  Willie  v.  Kirkpatrick,  28  Miss.  802;  Wislizenus  v.  O'Fallon,  91  Mo.  184; 
Underwood  v.  Eastman,  18  N.  H.  582 ;  Wiggin  v.  Hodgdon,  63  N.  H.  39 ;  Shippey  v. 
Henderson,  14  Johns.  178;  Graham  v.  O'Hern,  24  Hun,  221  ;  Tompkins  v.  llazen,  30 
N.  Y.  App.  Div.  359  (con/  8.  c.  165  N.  Y.  18) ;  Fraley  v.  Kelly,  88  N.  C.  227 ;  Earnest 
v  Parker,  4  Rawlc,  452;  Murphy  v.  Crawford,  114  Pa.  496;  Harris  r.  Peck,  1  R.  I. 
262 ;  Lanier  r.  Tolleson,  20  S.  C.  57 ;  Moseley  r.  Coldwell,  3  Bax.  208 ;  Farmers  v. 
Flint.  17  Vt.  508. 

The  new  promise  must,  however,  be  clear  and  free  from  ambiguity.  Expression! 
of  expectation  or  of  good  intentions  are  insufficient.  Mucklow  v.  St.  George,  4  Taunt. 
€13:  Lynbuy  v.  Weightman,  5  Esp.  198;  Brook  v.  Wood,  13  Price,  f.67 ;  Hearing  v. 
Moffitt,  6  Ala.  776;  Shockey  v.  Mills,  71  Ind.  288;  Bartlett  v.  Peck,  5  La.  Ann.  669; 
Unitod  Society  v.  Winkley"  7  Gray,  460;  Bigelow  v.  Norrifl,  139  Mass.  12;  Smith  v. 
Stani-hfield  (Minn.),  87  N.  W.  Rep.  917;  Stewart  v.  Reckless,  4  Zab.  427;  Roosevelt 
v.  Mark,  6  Johns.  Ch.  266;  Yoxtheimer  v.  Keyser,  11  Pa.  364;  Brown  v.  Collier, 
8  Humph.  510;  Moseley  v.  Coldwell,  3  Bax.  208.  Conf.  Bolton  v.  King,  105  Pa.  78; 
Taylor  v.  Nixon,  4  Sneed,  352. 

Part  payment  does  not  revive  the  obligation.  Tolle  v.  Smith,  98  Ky.  464  ;  Merriam 
v.  Bayley,  1  Gush.  77;  Inst.  for  Savings  i>.  Littlefield,  6  Cush.  210;  Jacobs  v.  Car- 
penter, 161  Mass.  16;  Stark  r  Stinson,  23  N.  H.  259;  Lawrence  v.  Harrington,  122 
N.  Y.  408;  Wheeler  r.  Simmons,  60  Hun,  404. 

A  conditional  promise  is  effectual,  but  the  condition  must  happen :    Besford   ». 


648  ALLEN   &  CO.   V.   FEKGUSON.  [CHAP.  VIII. 

Saunders,  2  H.  Bl.  116;  Campbell  v.  Sewell,  1  Chitty,  609;  Dearing  v.  Moffitt,  6  Ala. 
776 ;  Branch  Bank  v.  Boykin,  9  Ala.  320 ;  Mason  v.  Hughart,  9  B.  Mon.  480 ;  Carson 
v.  Osborn,  10  B.  Mon.  155 ;  Tolle  v.  Smith,  98  Ky.  464 ;  Yates,  Adm.,  v.  Hollings- 
worth,  5  Har.  &  J.  216;  Randidge  v.  Lyman,  124  Mass.  361 ;  Elwell  v.  Cumner,  136 
Mass.  102 ;  Scouton  v.  Eislord,  7  Johns.  36 ;  Kingston  v.  Wharton,  2  S.  &  R.  208 ; 
Taylor  v.  Nixon,  4  Sneed,  352 ;  Sherman  v.  Hobart,  26  Vt.  60 ;  or  be  waived :  Tomp- 
kins  v.  Hazen,  51  N.  Y.  Supp.  1003.  , 

It  has  been  held  in  a  few  cases  that  some  express  acceptance  of  the  condition  on 
the  part  of  the  creditor  is  necessary.  Craig  v.  Brown,  3  Wash.  C.  C.  503 ;  Samuel  v. 
Cravens,  10  Ark.  380  ;  Smith  v.  Stauchfield,  84  Minn.  343. 

A  new  promise  is  valid  though  made  before  the  discharge  is  granted.  Roberts  v. 
Morgan,  2  Esp.  736 ;  Brix  v.  Braham,  1  Bing.  281 ;  Earle  v.  Oliver,  2  Ex.  71  ;  Kirkpatrick 
v.  Tattersall,  13  M.  &  W.  766 ;  Zavelo  v.  Reeves,  227  U.  S.  625  ;  Lanagin  v.  Nowland,  44 
Ark.  84;  Knapp  v.  Hoyt,  57  la.  591  ;  Corliss  v.  Shepherd,  28  Me.  550;  Otis  v.  Gazlin, 
31  Me.  567;  Old  Town  Nat.  Bank  v.  Parker  (Md.)  87  Atl.  1105;  Lerow  v.  Wilmarth, 
7  Allen,  463 ;  Wiggin  v.  Hodgdon,  63  N.  H.  39 ;  Stilwell  v.  Coope,  4  Denio,  225  ; 
Fraley  v.  Kelly,  67  N.  C.  78  ;  Hornthal  v.  McRae,  67  N.  C.  21 ;  Hill  v.  Trainer,  49 
Wis.  537.  But  see  contra,  Thornton  v.  Nichols,  119  Ga.  50;  Ogden  v.  Redd,  13  Bush, 
581 ;  Graves  v.  McGuire,  79  Ky.  532  ;  Holt  v.  Akarman,  84  N.  J.  L.  371.  And  it  has 
been  held  valid  in  Pennsylvania,  though  made  before  bankruptcy  proceedings  have 
been  begun.  Kingston  v.  Wharton,  2  S.  &  R.  208;  Haines  v.  Stauffer,  13  Pa.  541. 
These  cases  would  probably  not  be  followed  elsewhere.  Thornton  v.  Nichols,  119  Ga. 
50 ;  Reed  v.  Frederick,  8  Gray,  230 ;  Lowell  on  Bankruptcy,  §  249. 

Doubtless  it  would  be  within  the  power  of  Congress  to  enact  provisions  in  the 
Federal  Bankruptcy  Act  in  regard  to  the  matter,  but  as  there  is  no  such  provision,  each 
state  may  apply  its  own  rule.  Holt  v.  Akarman,  84  N.  J.  L.  371.  See  also  Zavelo  v. 
Reeves,  227  U.  S.  625. 


LAW 

ITWTVTCPSTTY  OF  f.ATJFOttNTA 


